12/23/2005 12:00 am EST
"It’s clearly a new ballgame for gold," says Mary Anne and Pamela Aden. "By all indications, the game has a lot further to go and it’s going to be a good one." Here, they review the recent activity in gold, their outlook, and their top "buy and hold" picks in the sector.
"There’s no question, gold’s bull market is heating up. Increasingly, the evidence continues to grow, signaling a new investment era began a few years ago. This new era has been favoring gold over other investments like stocks and bonds, or even real estate. This year, gold has gained 23% compared to the gains in stocks, bonds, and real estate at 4.85% (S&P 500), 6.40%, and 16%, respectively. That’s been the case for the past four to six years, and it’s going to continue and intensify.
"These cycles have occurred about every 30 years and each time commodities have risen on average about 18 years. Since the current rise is only five years old, we’ll likely see another decade or so of rising metals prices before this mega upmove is over, based on the historical record. What’s behind the move? Let’s look at the facts. This new era is being driven by mountains of debt and deficit spending, lots of liquidity and money from central banks around the world, inflation, a boom in oil, China’s phenomenal growth, and demand for just about everything, the war on terror and global instability, both geopolitically and financially due to the largest imbalances ever.
"What to do? The government will do what it’s always done. It’ll take the least painful route and create whatever amount of money is necessary to keep things going. That in turn is the direct cause of inflation and this will continue to fuel inflation. It’s not a coincidence that M3 money supply has also soared over $1 trillion in the past year, rising more than 10% annualized. But the Fed has now decided not to publish the M3 figures any longer. It’ll just privately inflate, and we won’t know by how much. Gold, however, can’t be fooled. It’s like the world’s financial policeman. It’s the ultimate currency, it looks ahead and sees what’s coming, and that’s why gold keeps rising.
"We don’t enjoy being the bearers of bad news but unfortunately, rising gold and bad news often go hand in hand. And if there’s any doubt about what’s happening. David Walker, the Comptroller General or top auditor of the US, has been warning about a ‘fiscal hurricane on the horizon’ due to deficits in the budget, balance of payments, savings, and leadership. The financial imbalances are simply unsustainable and gold is signaling the final outcome probably will be painful. In the meantime, if a fiscal hurricane is coming, the best way to protect yourself is by owning gold.
"We’ve been taking this bull market one step at a time and with gold above $500, the third step in the bull market is complete and the fourth is now starting. Gold entered the third step when it reached a high near $456. It’s taken a year for gold to complete this step. Now comes the more exciting fourth step because gold has moved above the $500-$515 level. This means it’s now on its way to test the 1980 peak near $850, which is the topside of the fourth step. When gold finally gets above $850, it will take on a life of its own, which is when gold could skyrocket to perhaps the $1,500-$2,000 level before the mega bull market ends in the years ahead.
"We caution that a decline could occur at anytime. A correction could occur with gold declining to its 15-week moving average, now at $480. In a worst case scenario, we could see gold fall to its 65-week moving average, now at $440. But if that happens, it would be a great buying opportunity. However, we continue to recommend a buy and hold strategy because it’s the best way to invest in a major move. The past month was a good example why. If you want to take some profits near the intermediate highs, that’s okay but keep in mind they could also take off and you could then miss the big move when it comes."
"Our recommendation is to keep some physical gold, either popular gold coins or bars, StreetTracks Gold Trust (GLD NYSE) or iShares Comex Gold Trust (IAU ASE), some silver, and gold and silver shares. Among our recommendations, the strongest metals shares are Central Fund of Canada (CEF ASE); Newmont Mining (NEM NYSE), Agnico Eagle Mines (AEM NYSE), Glamis Gold (GLG NYSE), ASA Bermuda Ltd. (ASA NYSE), Anglogold Ashanti Ltd. (AU NYSE), Royal Gold (RGLD NASDAQ), US Global Investors World Precious Minerals (UNWPX), GoldCorp (GG NYSE), and Eldorado Gold (EGO ASE)."