Is the storm past? Commentary: Aden sisters see world, gold going back to 1970s
By Peter Brimelow
MarketWatch
Last Update: 10:08 AM ET Jun 26, 2006
NEW YORK -- It's been a rough few weeks, but one seasoned observer is beginning to relax, slightly. Actually, it's two, Pamela and Mary Anne Aden, who publish their Aden Forecast from Costa Rica.
They wrote Friday: "The markets are rebounding ... be it gold, silver. The U.S. stock market, the global markets and currencies ... they are all rising from their sell-off lows, while the dollar and bonds decline. The rises have further to go."
The Adens have been doing well recently, according to the Hulbert Financial Digest's monitoring. Over the past year, their portfolio appreciated 30.39% versus 10.60% for the dividend-reinvested DJ Wilshire 5000. Over the last five years, they gained 13.53% annualized, compared with 3.63% annualized for the DJ Wilshire.
The Adens are known as gold advocates, but short-term they are still quite cautious. They write: "Gold needs time to consolidate but if it closes and stays above $620, a renewed rise will be underway. Keep an eye on $562 (last week's low) and $620 as gold will be consolidating by staying between these levels."
Similarly, they remain positive but cautious about equities, writing: "Stocks are likely headed higher in the weeks ahead but the Dow will remain vulnerable if it stays below 11,230 .... (and) NASDAQ if it stays below 2235 ... the mega bear market in NASDAQ that started in 2000 isn't over yet."
In contrast, they don't like bonds. If the 30-year bond yield rises above 5.2%, they write, it will be a sign that long-tem rates will go much higher.
They don't like the U.S. dollar, either. They write: "The Euro and Canadian dollar are still our favorites, but the Swiss Franc and British pound are looking good too."
The Aden sisters explain their recommendations in terms of chart patterns. But they always back up their views with coherent big-picture arguments. This appeals to me, possibly because as a wordsmith I like sweeping statements, although Mark Hulbert's monitoring of investment letter track records shows that good arguments don't necessarily mean good results.
Right now, the Adens see the world, and the gold market, going back to the 1970s. They list six factors: "1. Too much spending. 2. Too much money is being produced. 3. Inflation. 4. The weak US dollar. 5. International tensions. 6. China's growth and ongoing demand for commodities."
But, they add, China, and also India, will make a difference this time: They will spur even greater price rises and demand for gold.
With the caveats and caution you always find with experienced gold bugs, contrary to their image, the Adens suggest that gold could eventually go as high as $7,000 an ounce. They arrive at this conclusion by looking at the gold-Dow ratio, setting the ratio at its historic low and projecting an historic bear market correction level for the Dow.
Interestingly, this target supports Dow Theory Letter's Richard Russell in his periodic contention that gold and the Dow will cross in price, as they did during the last gold bull market.
If we really going back to the 1970s, that presumably means the stock market will ultimately suffer because of inflation. The Adens' answer appears to be gold and natural resource stocks. On Friday, they wrote: "Risk is low to start buying small positions in some of the strongest gold and resource shares. These are Glamis Gold (GLG), El Dorado Gold (EGO), BHP Billiton (BHP) , Rio Tinto (RTP) , Phelps Dodge (PD) , (and) Cameco (CCJ) as well as Meridian (MDG) and Iamgold (IAG) , which are new positions." |
