Thursday, 03 May 2007
When assessing the outlook for the economy, Mary Anne and Pamela Aden note, “The bottom line is that a tug of war is going on with inflation and recession pressures both pulling on the markets.”
“Investors need to be prepared for anything,” they note in The Aden Forecast. One sector they believe remains firmly in a long term bull market is gold, which they believe could remain strong for years come.
“Amazingly, the amount of mortgage debt created in the past six years has been equal to the mortgage debt created the last 50 years. There’s also concern the housing squeeze will mean less consumer spending and, therefore, a recession.
“One thing is fairly certain… with housing on thin ice and a recession or slowdown more of a possibility, interest rates are not going higher and that’s why we’re recommending bonds again. But inflation is moving up too. Producer prices have risen nearly 10% annualized over the past four months.
“As you know, inflation is bad for bonds but it’s good for gold. So these conflicting signs could mean future stagflation, which is a combination of a weak economy along with inflation.
“In previous booms, one market would usually move up while another declined. But since 2003, the markets have all been rising and that’s unusual. The main reason why is because of massive global liquidity.
“Overall and most important, you want to stay invested with the major trends in the strongest markets. That still means gold, silver, and the stronger gold, silver, and resource shares. These markets have been stronger than stocks or bonds over the years and that continues to be the case.
“Other positive signs that reinforce a powerful bull market are when gold is strong in all currencies, and when all of the precious metals are rising in major uptrends. This is happening today.
“We often discuss the reasons why gold will stay on track to rise in the years, and more likely decades ahead. Aside from growing global monetary inflation, price inflation, out of sight deficits and debt and the war, we also have a growing shortage.
“In fact, there’s currently a shortage in many commodities. Gold production is down around the world. South African gold production, for instance, fell to its lowest level in 84 years last year.
“For now, keep an eye on the February highs near $690. Above that level, then $722 will become an easy target. Gold would be impressive above this level as it would confirm a very strong bull market. The downside is just as important to watch because if $639 is broken, gold’s current rise will be over.
“Silver looks good in spite of its recent set back. Its major trend remains solidly up above $12.00, it’s holding near the highs and silver is still stronger than gold. We continue to recommend keeping a balance between gold, silver, their shares.
“Keep more in silver and gold itself or their ETFs. In particular, for gold we recommend streetTRACKS Gold (NYSE: GLD) and iShares Comex Gold (ASE: IAU). For silver, we recommend iShares Silver Trust (ASE: SLV).
AI
