The Aden Forecast for Gold, Markets and Rates

08/22/2019 5:00 am EST

Focus: COMMODITIES

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Interest rates plunged and they’re at or near their all-time record lows. Normally, this suggests a recession may be lurking downstream, but since this was triggered by the Fed during a time of economic growth, we’ll have to wait and see, notes Mary Anne and Pamela Aden, editors of The Aden Forecast.

We do know, however, that China’s growth has slowed the most in 27 years. And since China has been the locomotive for the global economy, the entire world economy warrants attention and we’re watching this closely.

Super low interest rates propelled the bond market higher and it’s been one of the strongest markets worldwide. Bond prices have been much stronger than stocks and this will likely continue as interest rates decline further.

Also, don’t forget that debt continues to soar. It’s totally out of sight and eventually there will be a price to pay. That day has been postponed thousands of times, but could this transition involve the skyrocketing debt load? We wouldn’t rule it out.

But the main thing that bothers us is that the world has not clearly recovered from the 2007-08 financial crisis. Sure, everything seems okay on the surface, but it’s not and here’s why... It’s very strange that everyone is lowering interest rates during so called good economic times.

Yes, the global economy has slowed, but normally interest rates go down during recessions. They don’t decline when economies are in a growth phase, with a bullish stock market and low unemployment. 

The problem with this is when the economy really does slow down, or goes into recession, there won’t be room for the central banks (Fed in the U.S.) to cut interest rates much further, which is an important tool to help boost the economy out of a recession.

In the case of the U.S., the Trump administration wants to do whatever it has to do to keep the economy going into 2020 in order to win reelection.

But other countries are doing the same. So what happens when you can’t cut interest rates because they’re already too low? You create more money out of thin air, which is a dangerous game, likely inflating the next financial bubble that could be the biggest one yet.

The bottom line is that it’s not healthy to fool around with the economy in ways that have never been done before. This manipulation has the potential to end up in one big mess. We truly hope not, but the world is playing with fire and anything is possible.

Put it all together and this uncertainty has fueled a surging gold price. This is a market we believe is going much higher as the transition unfolds. Devaluing currencies and near zero interest rates alone are very bullish for gold.

Throw in the debt, a likely drop in the U.S. dollar, and easy money, and the mix becomes even more powerful for an ongoing rise in the gold price.

Gold shares are soaring and leading the way up, which is what they usually do during bull markets. Here too, these markets have been so bombed out, they have plenty of room to rise further and this sector will clearly continue to be a beneficiary.

We own several mining stocks in our model portfolio including Eldorado Gold (EGO), Royal Gold (RGLD) and Agnico Eagle Mines (AEM). Among gold mining funds, we also own VanEck Vectors Gold Miners ETF (GDX) and VanEck Vectors Junior Gold Miners ETF (GDXJ).

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