FINANCIAL MARKETS OUT ... TANGIBLES IN - by Mary Anne and Pamela Aden

05/15/2002

Go With the New Wave

It's all finally falling into place. It took some time, but the markets are now signaling an important change. A new investment era has begun and all of the markets are now reinforcing this.

Gold, for instance, moved sharply higher to an over two year high. Gold shares soared. They're up over 50% this year. The U.S. Dollar finally broke down, hitting a seven month low and it's headed lower. This alone is very important because it's reinforcing that gold's strength is for real?

The stock market joined in too. It also turned down with Nasdaq leading the way to a seven month low. Meanwhile, oil remains bullish and the all important bond market is bearish.

Signs of change have been popping up for some time. Some of the markets actually turned months ago but others took their time. Now, however, it's another story. All of the markets are reinforcing each other and that's powerful action across the board.

Why? Because the verdict is now unanimous. Financial assets are out and tangible assets are in. This marks a huge change from previous years when stocks were all the rage and gold was ignored. In this new era, it'll be just the opposite. Tangible assets like gold will continue to outperform financial assets like stocks and bonds over the next couple of years. And if you haven't yet changed your investment strategy to reflect these major changes, we strongly urge you to do so.July Silver:

It's not too late. In fact, it's really just beginning. This new wave is going to intensify and it has the potential to become even bigger than we think considering the following...

GOLD SHARES: Best performing market

Gold shares were one of the top performers of all stock groups last year and the best performer so far this year, but the public hasn't caught on. There's been little mention of this on CNBC or in the financial press. They're still talking about traditional stocks, earnings and so on, and they're missing the action.

Plus, Wall Street is skeptical of gold. They've seen it drop for years and they're not interested. They're still touting the "hold stocks for the long term" strategy, which is what most investors are doing. Even some gold bugs are skeptical, having been burned many times. But that's actually good news.

It means that gold's bull market is gaining momentum essentially unnoticed. The so called smart money has been buying, but it hasn't attracted attention, suggesting gold and gold shares have a lot further to go on the upside.

Once these markets do start attracting attention, more investors and funds will start jumping in, driving prices even higher. And since the total value of all publicly owned gold mining companies is about the same as Disney, it won't take much.

The weaker Dollar is going to have a big effect too. The Dollar is the key and one of the most important factors affecting the gold price. It's been the world's safe haven over the past six years as investors moved into Dollars, pushing it higher.

But those days are over. Gold moved up on Middle East concerns and it's becoming the new safe haven like it usually is during bull markets. This alone is going to propel the gold price higher.

Plus, the Dollar is now falling sharply. As it declines further, investors will increasingly turn to gold, which will push the price up too. A weaker Dollar will also add to inflation pressures and together with rising oil, massive money creation of a trillion Dollars over the past year in the U.S. alone, and government deficit spending, it all adds up to inflation downstream.

The Stage is Set

In fact, it's already starting to happen. The producer price index was recently up a huge 12% annually as energy prices soared. Import prices surged 13.2% annually at the fastest pace in 1 ˝ years. This largely went unnoticed and maybe it was a fluke, but we don't think so. Why? Because the bond market is confirming it too. Bonds are super inflation sensitive and they've have been dropping for the past six months.

The stage is set and we'll probably see more numbers like this in the months ahead. If that happens, investors are going to take note that inflation's back. They're then going to turn to gold, the tried and true inflation hedge, and drive it higher, which in turn will push the Dollar even lower.

What's in Store

The wheels are in motion. Looking at the chart, you can see that the Dollar and stocks generally move together, and gold moves opposite. That's now happening again. Gold is bullish, and the Dollar and stocks are bearish. Remember, these are major trends and they're clearly signaling the tide has changed.

How high could gold go? That's going to depend on how these factors unfold. But based on our technical research, there's a good chance this rise could take gold up to the $360-$380 level as a next reasonable target, and possibly higher. Much will depend on what happens to the Dollar.

For now, the U.S. current account deficit is huge, at historically unprecedented levels, and this normally coincides with a weakening currency. A Federal Reserve study, for instance, found that when deficits exceed 5% of GDP, they tend to reverse along with an average fall of 40% in the exchange rate. The U.S. is dangerously close to that level now. In other words, a huge Dollar decline is likely this year and next. And as it happens, gold could soar.

So gold's time has finally come. As usually happens during bull markets, gold shares are even better. These markets are looking very good and that's where the profits are going to be this year and probably next.


Mary Anne and Pamela Aden are internationally known investment analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts on gold, gold shares and other major markets. Visit their website at AdenForecast.com








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