Veteran analyst Pamela
Aden’s studies of the market suggest that although recovery is by no
means imminent, a respite for the battered stock market is due and she sees
important signs of calming in the turbulence. In this wide-ranging interview
with The Gold Report as one of Wall Street’s worst years comes to a
close, Pamela—who with her sister, Mary Anne, publishes the highly
regarded Aden Forecast—talks about prospects for gold, silver, bonds,
currencies and more.
The Gold Report: The stock market is down, the dollar index is down, the LIBOR (London
Interbank Offered Rate) has also come down, but gold and Euros are on the
rise. One of your recent letters indicated that these are all signs that the
crisis is calming down. Could you explain that?
Pamela Aden: We’ve been measuring and watching the crisis and the recession
in the various markets. The way they move will tell us when things are
easing. The LIBOR rate, for example, stayed high when the T-Bill rate
collapsed. This alone was clearly crisis driven. But it has been coming down,
which is saying that the crisis is easing. This is a good sign.
This is not to say the crisis is
over. It’s just easing up a bit. The dollar’s strength has been
crisis-related; it isn’t based on its own merits. So with dollar
beginning to decline after these last several months of crisis-related
strength, it’s another sign of easing in the crisis.
Therefore, with the dollar
coming down, the Euro and gold are rising, as they’re more closely tied
to the dollar than other currencies.
about the commodities—gold, silver, oil and other metals?
the resource sector was really hot in 2003 and 2006, silver soared much more
than gold. So that’s another barometer for the recession—the
silver-gold ratio. When silver starts outperforming gold, it means the
resource sector is starting to strengthen. Silver will have a bigger boost
than gold when it’s rising as both a precious metal and an industrial
Recent new lows in oil and
copper suggest that the recession signs are not letting up. They’re
still there, they’re real, they’re scary; but you also see that
Mr. Bernanke is doing everything he can to prevent the economy from moving
from recession to deflation.
many more essential tools to fight does he still have? The interest rates are
at zero. He’s already produced trillions of dollars. What more can he
He’s going to keep doing that. He can’t lower interest rates from
zero, but he has other instruments he can and will use. It also will help
when the banks start spending the money they now have available to lend. You
can lead a horse to water, but you can’t make him drink. That’s
kind of what they’re facing now.
these moves actually encourage the banks to ease up?
time, yes, they will. People are still shell-shocked. Everyone is pulling
back, and in some cases a lot, by being conservative and careful, not wanting
to make any mistakes. They can’t afford mistakes. Everyone’s
spending less, from the consumer to the banks.
But life goes on and people need
loans; banks need to lend. Even though it might not be the wild situation
that’s been going on, it still has to happen. That is where it’ll
start easing up little by little with time.
All of the global stock markets
are now completely bombed out, the most since 1974. It’s not casual.
It’s a big major oversold situation. That alone says that the markets
are poised for a bounce-up. The gold and Euro rise may be leading the way in
a rebound rise because most markets need a breather. And while this rise
could be impressive on an intermediate basis, it doesn’t mean that the
bear market will end. A bear market is clearly the stronger force now.
Maybe we might get that January
surprise rise on a rebound basis and perhaps Obama optimism will be the
reason (with everyone having such high hopes for him). Low interest rates are
another positive for the market. When T-Bills, for example, first fell to
zero on November 20, it coincided with the stock market low. The stock market
has been wanting to bottom, and T-Bills have been sitting practically at zero
since then. So that is helping the stock market.
the potential for a January surprise, then, all the signs you see tell us
that recession will continue, albeit perhaps with a little blip in a
continuing bear market?
PA: I think
so, definitely. It’s to be seen if it’s going to turn the market
around. Sometimes bear market rallies can be fantastic in the sense that they
are rising from a bombed out level. But it doesn’t mean that the
market’s going to turn bullish from here and continue on into an
ongoing multi-year rise. It just means a several month bounce is possible.
It seems to me, the way that the
markets are looking, that we’ll still have bad news coming out for next
year, before mid-year. We’ll likely hear more stories similar to that
of the auto industry. The money still has to come out of the Fed. After a
rebound rise takes the market out of an oversold area, the market could turn
lifeless. It wouldn’t be surprising to see a lackluster
performance after a bounce.
TGR: In this
lackluster market environment you’re
describing a continuing recession, do you maybe see the gold sector breaking
out and actually starting an increase in a bear sector market?
What’s interesting with gold’s rally over the past several weeks
is that after the plunge this year, gold will probably break even or have a
gain for the 2008 year. If so, it will be the ninth year that gold’s
had a consistent gain. Even if it’s a small gain or a break even year,
it’s still not a losing year. That’s good for gold, when looking
at it on a year-by-year basis. The Fed and other central banks are printing
money like never before to save the financial system. In protecting their
countries and their banking system, they will eventually create the biggest
inflation boom that will be exceptional for gold investors.
It’s hard to say when
we’ll see the end of the whole crisis and recession period. It could be
a year away, two years possibly. But after that, is when I think gold is
going to go way up, and the dollar and probably a lot of the currencies will
take a back seat to gold. I think that gold will have its moment at that
For now, gold actually has held
up the best of any market. It’s held up better than the stock market,
and it’s held up better than the commodities. Of course, we can’t
compare gold to the bond market right now because, since the crisis, bonds
have been extremely strong. But when looking at gold compared to bonds going
way back it shows that the mega-trend turned to favor
gold over bonds in 2003 for the first time since the early 1980s. It said
gold is a better investment than bonds. Last March, gold rose too high versus
bonds and it was due for a downward correction versus bonds, which, of
course, it’s done in recent months. Bonds have been stronger than gold
but it’s now getting closer to a point of approaching the mega-trend. So
far, the mega-trend favors gold over bonds in spite
of the last month’s rise. This is an interesting indicator and
it’s still telling us the mega-trend still favors
gold, not bonds, even though bonds have been very good in recent months and
probably will continue to be good.
the interest rates on bonds reaching zero, how does that work as an
government bonds have been soaring. While the dollar has been strong, during
the crisis, bonds have clearly been the best investment by far. If you had
bought them in August or September, you would have been the winner of the
year. Very few people really caught that. I have yet to see anyone say,
“Yeah, I’ve been big on bonds.” It’s interesting. It
caught a lot of people, even the bond people, off guard.
with the dollar now beginning to weaken, would you expect bonds to weaken,
would think so, but they don’t always go hand-in-hand. In fact, bonds
have been an excellent investment. Just look at it on the mega-trend basis
since 1981. They are still in a mega uptrend since then. Of course, gold has
been better since 2001 and so have other markets. But bonds by themselves
(not comparing it to any other market) have been an okay investment. It’s
said that on a mega-trend basis, gold will outperform bonds even though bonds
have been a good investment. What other sectors or specific commodities do
you see outperforming the market?
of all, gold is special because it’s the ultimate currency and so
it’s always going to be the currency in time of need when the dollar is
not doing well, and I think the dollar is in for some hard times. Not just
the crisis. It also has been very subtly, slowly losing its reserve status
since the 1970s. It will be interesting to see what happens once this crisis
How much something hurts will
determine whether there will be any clear structural changes. In the U.S., will
they really restructure the markets that caused all this? Will globalization
end and everyone turn inward and try to protect themselves? These are all
things to be seen.
In any case, the countries of
the world are seeing that it’s not worth it for the dollar to have the
reserve status. They have to worry about it because they all have a lot of
dollars, so they have to ease out carefully. They don’t want it to fall
either. But I think that’s going to change over the next 10 or 20
years. We are going to see the dollar eventually become part of a global
reserve and not the only global reserve.
The global reserve may become a
basket of gold and Euros and dollars and maybe yen. And just with that twist,
which doesn’t seem like a big deal to most people, is a huge deal for
gold and for the dollar. It would make the dollar fall a lot more over time
and gold rise a lot more because it would cause a lot more demand for gold,
probably more than they’re able to get out of the ground.
TGR: Do you
eventually see the elimination of fiat currencies and going back to a gold
standard? Or is this just not possible anymore?
PA: If the
worst part of the crisis and recession is now, then maybe not. But I think if
things get bad enough, if it keeps getting worse, I’d say yes. You have
to see how other countries see the U.S. Right now, they are probably
upset because the U.S.
has been able to keep their standard of living due to their privileged
reserve status. Having the reserve currency allows them to spend all they
want, create all the money they want because everyone accepts their currency.
No other country can do that.
If the U.S. could no
longer do that, it would be a huge change. That’s to be seen. I
don’t like to be so dramatic, but those kinds of changes are coming. It
takes time to do it, but over time I think that definitely that’s going
to be what happens. That situation is favorable for
gold and makes it special versus the commodities. Then, when you take the
commodities—energy, resource, even soft commodities as a whole
system—you can expect a commodities boom once the recession phase is
President-elect Obama wants to
start a whole new infrastructure phase for the U.S., which is needed and will be
the first it’s had since the '50s. China
are talking about doing the same. The emerging countries are also building
infrastructure, which will continue to grow even if at a slower pace. This
means infrastructure-related investments will be the coming boom, which is commodities. It’s to be seen when, but it’s coming. I think that 2009 will end up being the
year that people want to have a lot of cash to be able to start picking some
bottoms in different sectors. That is probably the best strategy anyone could
have right now.
though copper and oil are at lows, do you see a possibility they might go
There’s nothing stopping them right now other than the fact that
they’ve gone down so far so fast that it’s unlikely they will
keep this wild pace. But there’s really nothing keeping them from going
down further. I do think that the downside is limited for now; and if we see
a boost in the stock market, we’ll see it in the energy stocks,
resource stocks, and probably oil alternatives and base metals,
too—they are all just as bombed out as copper.
You’ve said that copper is sort of the barometer of the economy.
PA: Yes, it
is the barometer. It’s like the front man for the base metal industry,
and it’s saying right now that the demand’s not there, that the
recession is still going, everyone’s still cutting back. But markets
always tend to go from one extreme to the other. So right now, resource and
energy are bombed out markets.
Thinking about your advice about staying in cash and looking for some of
those bottoms, gold is probably the one that’s looking good to you
right now, and you’d be looking forward for more opportunistic
circumstances for the rest?
PA: Yes. We
like gold and the idea of buying it during weakness. You may not want to load
up on it a lot because we still could see some more weakness in gold next
year. It’s not totally out of the woods, though it’s definitely
doing fine. We had a great buying opportunity this year and it looks like we
may get another chance to buy at a low price sometime next year. It’s
hard to say when, but it looks like by midyear or so. I would think if we do
get an opportunity, it’s going to be the last opportunity to get it at
a decent price.
TGR: Are you
a proponent of buying gold equities, the mining stocks?
now, yes, because they are the most bombed out of everything. Every sector
you look at in the stock market, gold company shares took the number one
prize in falling the most. And they fell so much
more than gold itself. When you look at the gold share index compared to
gold, it was a straight line down.
TGR: Many of
your open positions appear to be in very large gold producers. What are your
thoughts on investing in large gold producers as opposed to exploratory
companies and to smaller ones that may just be coming-on-board producers?
don’t go into the smaller ones because that takes a certain expertise. Many
people dedicate their full studies to small caps in the mining business. So I
respect the people in that industry and see what they like. We just stay with
the seniors that we know. You don’t have to worry about management or
anything about the mine other than how it performs with the gold price. That’s
why I really don’t have an answer for you on that. Of course,
there’ll be some juniors that’ll be fantastic, but the seniors
were very good, too.
When they got so bombed out a
few months back, we definitely decided it was such an easy thing to buy
companies like Goldcorp (TSX:G)
(NYSE:GG) or Agnico-Eagle Mines (TSX:AEM) or El Dorado Gold Corporation
(ELD.TO) (AMEX:EGO), any of those. You could have
bought almost anything, but these were the prime candidates for a rebound. I
thought they'd rebound nicely and the stock market probably would rebound
with them, but they’re rebounding with the gold price. It makes sense,
given how bombed out they were. And that doesn’t mean that
they’re out of the woods. Once this rebound is over, we’ll
probably sell some of our gold shares and wait to see what’s in store
for next year. Next year is one to watch the market develop and look for
people would say you’ve got bargains right now.
you do, definitely in gold shares and gold we’ve had bargains. And
definitely we have been recommending buying those in recent months.
also have some of the gold spiders and exchange-traded funds related to gold.
How do you compare those investments to owning gold bullion?
Physical gold is the best, but it’s not always the most convenient for
investors. The exchange-traded funds have been a wonderful vehicle because
they allowed everyone to buy gold easily through their broker. It added great
demand and helped push gold up in the bull market, so it’s been very
good. On the downside, gold got caught up in the wind of the crisis. When all
the hedge funds were deleveraging—and they still are—not only
were they forced to sell everything, which is why most assets went down, but
in the case of exchange-traded funds in gold, they also were forced to sell
gold on the market. That put additional downward pressure on the gold price.
So there was a downside to that and an upside. It’s a good mix to have
them both. ETFs make it easier to get in and out
whereas you tend to keep bullion and not sell it. I definitely like both.
on you mentioned the fact that the ratio between the price of silver and gold
is a bigger gap than normal and that silver is poised to increase at this
point. Do you see that as just an immediate trend in the next couple of
months or will it continue to increase as gold does?
always moves with gold. Whether it’s going to be stronger or weaker
than gold is the question and right now the trend is favoring
gold over silver. Certainly in the years from 2003 to 2006, silver was the
winner compared to gold. I think silver is still an okay investment. Again,
if you have to pick, I like gold better, but I do like silver too and its
rise is just starting. In fact, though it’s following gold, it could be
leading the base metals in an intermediate rise and silver does have more
upside potential in the short term. It’s not even close to overbought.
You’ve talked a bit about megatrends in gold and bond ratios, and
tracking megatrends is certainly something that you and Mary Anne do in the Aden
Forecast. Can you tell us a bit more about the methodology you use?
we’ve always felt that you really can’t see when to buy or sell
something unless you see it on a chart. The fundamentals and the technicals complement each other nicely, so we do both
together. Correlations are also important, such as how the market fits into
the whole global system, and how markets correlate with each other. When
interest rates rise, what do other markets usually do? If gold rises, what
else rises or declines with it? When one market influences another and they
move opposite or move together, if that changes, you find out what’s
changing it and why is it changing? Correlating markets has been a very big
part of our overall ongoing views and opinions of the market.
Over the years we also have
developed our leading indicators. We go from short to medium and long term
and then the mega-trend. There are three trends. The intermediate trend, for
example, occurs when something had a nice rise for three to nine months and
is definitely due for a rest—or the same on the downside. Long term
would be anywhere from three to five years; maybe even seven or eight years. Mega-trend
would be more like a move that’s been going on for decades. Those are
pretty much the three trends we zero in on. Within that framework, we try to
pick the strongest market and break down our portfolio based on that.
long have you been publishing the Aden Forecast?
We’ve been writing our monthly newsletter since 1982, so it’s
going on 28 years. We first started getting involved in following the markets
before that, though. We’d actually been studying the markets privately,
following the gold price and also other markets every day since 1976. We
wrote a gold report back in 1981, and then we launched the newsletter, which
we’ve been doing nonstop ever since. Along the way we manage money and
we’re going to start other services, but we’ve always dedicated
ourselves basically to writing the newsletter.
Investment analysts Pamela and
Mary Anne Aden are the well-known co-editors and publishers of The Aden Forecast, a
monthly investment newsletter now in its 27th year, which specializes in the
U.S. stock market, U.S. interest rates and bonds, the international stock and
bond markets, as well as the foreign exchange and precious metals markets.
The Aden Forecast is known for its original technical research, leading market indicators,
market correlations, cycles and historical market research, and one of the
best and most consistent long-term track records in the business. In June
2008, The Aden Forecast was rated the fifth best performing investment
newsletter over the past 12 months, out of more than 180 newsletters tracked
by The Hulbert Financial Digest (HFD), putting it in the top 2.7%.
In May 2008, The Aden Forecast was rated
the 10th-best performer over the past 12 months according to the HFD, up
18.8%. Over the past five years, the letter achieved a 16.74% annualized
gain, vs. 11.77% annualized for the total return DJ-Wilshire 5000 (DJW). Over
the past 10 years, the Aden
Forecast also outperformed the total-return for the DJW.
who live in San Jose, Costa Rica, have authored dozens
of reports and articles and have spoken at investment seminars across the
globe. Their work has been featured in The Wall Street Journal, Money
Magazine, Barron's, The London
Financial Times, as well as CNBC business news and the international
television documentary, Women of the World.
The Gold Report
Visit The GOLD Report - www.theaureport.com – a unique, free site featuring summaries of
articles from major publications, specific recommendations from top worldwide
analysts and portfolio managers covering gold stocks, and a directory, with
samples, of precious metals newsletters. To subscribe, please complete our
online form, or send an email with the word 'Subscribe' in the subject field
The GOLD Report is Copyright © 2005 by
Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an
unrestricted license to use or disseminate this copyrighted material
only in whole (and always including this disclaimer), but never in part. The
GOLD Report does not render investment advice and does not endorse or
recommend the business, products, services or securities of any company
mentioned in this report. From
time to time, Streetwise Inc. directors, officers, employees or members of
their families may have a long or short position in securities mentioned and
may make purchases and/or sales of those securities in the open market or
otherwise. Streetwise Inc. does
not guarantee the accuracy or thoroughness of the information reported.