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Good Morning,
Gold picked up a few additional dollars overnight, owing to more Asian buying interest and a mixed bag of market values in base metals, currencies, and equities. Although the US dollar came under some pressure in the wake of news that home foreclosures rose 55% in July, the euro and the pound found themselves under even higher stress this morning. The eurozone economy shrank 0.2% in the second quarter, while its core driver - the German economy - shrank 0.5% in the same period. France did not fare much better, shrinking 0.3% in GDP. This is the first such contraction in Europe since the common currency made its debut nearly ten years ago. Developing US-style troubles in the UK helped pound the pound to a 22-month low against the greenback. Oil prices oscillated near $116 after yesterday's surprise fall in inventories (despite the growing trend of Americans taking "staycations" instead of to the road) and amid news that the Russian withdrawal from Georgia looks more like digging in, especially in the Black Sea port of Poti.
Thursday's NY trading session opened with a small $4.00 gain for gold. Initial quotes came in at $829.50 per ounce basis spot bid as players awaited more US economic (inflation figures, were on tap, and they show higher than forecast numbers, while retail sales dropped nearly 1% and initial jobless claims fell by 10,000) data to make its way onto the economic calendar today and tomorrow. Today's CPI figures showing a rise of 5.6% over the past year (the highest in 17 years) may give the Fed all the signals it needs for a September rate hike. Coming at a juncture when the ECB might have to consider putting out the fire of economic slowdown in lieu of dousing the inflationary one, could make the dollar look a lot better than it has just recently - which was not bad at all. The mixed intra-day trend was evident from the start, as silver lost 8 cents to $14.79 while platinum rose $4 to $1503 but palladium fell $5 to $315 per ounce. Impala Platinum, the second largest producer of the noble metal appears to be the takeover target by giant BHP. Crude oil was off 25 cents at $115.75 while the dollar lost 0.08 at 76.24 on the index and was quoted at $1.491 against the euro.
As the turmoil in the markets continues, at least two of the longest-term supporters of the commodity sector are not prepared to call the party over. They are, however, signaling that if the time is upon them, they will make the shift that numerous index and hedge funds have been seen making over the past month in a big way. Peter Brimelow reports that our long-time good friends, the famous Aden sisters are not willing to throw in the proverbial towel on commodities just yet. However, they have taken the lead among hard-money newsletters and are signaling that -if conditions turn to a specific point- they would be induced to make an important shift:
"Commodities crunch. But one jumpy hard-assets letter isn't ready to jump yet.
The Aden Forecast, edited by Cost Rica-based sisters Pamela and Mary Anne Aden, has been benefiting from a return of the financial conditions that first brought it to fame in the 1970s. But experience has taught it to listen to the market. It's worked. Over the past 12 months, the Aden Forecast is up 13.84% by Hulbert Financial Digest count, vs. negative 10.23% for the dividend-reinvested Dow Jones Wilshire 5000. That makes it HFD's fifth-best performer over the period. Over the past five years, the Aden Forecast has achieved a 14.2% annualized gain, vs. 8% annualized for the total return DJ-Wilshire 5000.
But year to date, the Aden Forecast is slightly under water, down 0.2% vs. some 12% for the total return DJW.
That still means the Aden Forecast is the 20th-highest performer among the 180-plus letters tracked by the HFD. But the Adens don't like it and in their latest issue, just in, spend some time empathizing with their subscribers.
The last time the Adens' hard-assets millennial march looked like it was losing momentum, in mid-2007, they acted decisively, reasoning in effect that you don't fight the tape and profitably catching the final months of the stock market surge.
Not this time. They argue forcefully that the major trend is still intact: "A huge mega change took place in 2000. At that time, a new ball game began and the old rules didn't apply anymore. This major change marked a dramatic shift from financial assets, like stocks which did very well from 1980 to 2000, to tangible assets like gold and commodities, which have been doing very well since 2000. This is the most important factor to understand in today's investing climate. It's the mega uptrend. It's the most powerful and dominant trend and it will prevail.
"Of course there will be corrections along the way. This is normal because no market goes straight up. That's what's happening now. But recognize that these down moves are corrections within the mega uptrends."
But, the Adens add: "If that were to change, however, we'd change with it. We'd have to because it's a huge mistake to go against the major trends."
You can actually see this process of trend-testing underway in the Adens' discussion of gold: "As we write, for one of the first times in seven years, gold is seriously testing its major trend. It's slipping below its key 65-week moving average at $819. The only other two times this temporarily happened was in 2004 and 2005. This is now important to watch because if December gold stays clearly below $819 this week, the major trend will turn bearish for the first time since 2001. This is an alert!
"Keep in mind, our maximum downside target ... has been the 65-week moving average. Based on timing, August is also a normal time for a [low]. Plus, considering the oversold nature in most metals and shares, it looks like the worst is at hand, rather than this being the start of a bear market."
But they add: "Nevertheless, we have to be cautious. This may be a great buying opportunity but we also have to be prepared to make a change if that's what the market tells us."
Right now, the Adens recommend sticking with their recommended investment allocation:
- 40% Gold & silver physical & ETFs, and gold & silver shares
- 30% Energy and resource stocks
- 30% Cash: Euro, Swiss franc, Singapore and Australian dollars, U.S. dollar or currency funds
Such a stance, while still bullish, is a whole lot more honest and willing to be flexible for the sake of the portfolios it advises than the vast majority of the Adens' competitors. For this, we heartily applaud them.
The inflation report from the US could bolster rate hike expectations, while the economic report from Europe might give rate cut ones a boost. Watch for profit-takers versus bargain hunters, and pay attention to the upcoming open interest figures.
Happy Trading.
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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