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ADEN
FORECAST
THE
MONEY • METALS • MARKETS
NOVEMBER 2015
our 34th year
MARKET OBSESSED with fed
The markets did a flip-flop this
month. Stocks, interest rates and
the U.S. dollar surged, but bond
prices, currencies and the precious
metals fell. So what’s going on?
IT’S ALL ABOUT INTEREST
RATES
Once again, it was all about interest rates. Increasingly, they’ve
become the factor moving all of the
markets.
What will the Fed do and when?
As we’ve previously mentioned,
the markets are not reacting to normal fundamentals. And as our dear
friend Richard Russell notes, all of
the old methods of analyzing markets have given way to deciphering
what the Fed or ECB will do next.
The central banks have essentially taken over the free markets.
And the markets are abnormal
because of this. But as we’ve often
noted, when things change, we have
to change with them. So for now, it’s
all about the Fed.
Nothing else seems to matter
much. It’s interest rates and Yellen.
That’s what the markets care about
and that’s what they’re focused on,
INSIDE
U.S. & World Stock Markets..... 3
More Cons than Pros
U.S. Interest Rates & Bonds.......5
Interest rates to rise?
Currencies....................................6
U.S. dollar: Flexing muscles...
Metals & Natural Resources..... 8
Gold sells off while demand grows
Copyright Aden
Research
November
13, 2015
to the point of obsession.
So when Yellen said that it’s a
‘live’ possibility that interest rates
will be raised in December, the
markets went bananas (see Chart
1). They reacted as if it was a done
deal. But as you’ll see this month,
it’s not.
You’ll also see that, despite some
surprises and this month’s sharp
market moves, our recommendations are still okay, at least for the
time being.
But it’s definitely a new ball game
and it’s becoming more intense.
ARMAGEDDON?
As we’ve often mentioned, many
of our colleagues in this business
are convinced a big financial crisis
is coming, primarily as a result of a
full blown debt meltdown. That was
the topic of several of the speeches
at the recent New Orleans Investment Conference.
You’ll remember that in 2008,
the crisis was triggered by the
abuses in the subprime real estate
loan market.
This time around, student loans,
corporate debt and emerging market
debt are all at dangerous levels. Not
to mention that total debt is 40%
more than it was eight years ago,
and all this debt is a big factor fueling deflation.
The point is, any one of these
debt bloated sectors could trigger
serious problems, both for the
economy and the stock market,
like in 2008.
Let’s take the emerging market
debt as an example. Very simply,
it has skyrocketed since the last
financial crisis.
1
As Business Insider reports,
China’s debt levels have soared to
282% of GDP from 121% of GDP in
2007.
Plus, half of companies have debt
interest payments that are twice as
high as their earnings. So China is
clearly not out of the woods and it
could still shake up the rest of the
world, like it did in August.
But China is not alone. Many of
the other emerging countries are in
dire straits as well. Basically, a lot
of money went into emerging markets in recent years. Cheap money
was borrowed to invest in countries
where growth was faster than it was
in the West. But that’s not the case
any longer (see Chart 2).
EMERGING MARKETS
LEADING?
Note the emerging stock markets
have been hard hit. In large part it’s
because of the sharp drop in commodity prices, which have a strong
influence on their economies.
The biggest concern is that due
to their high debt levels, these
countries could botch the struggling
global growth and take the rest of
the world’s stock market’s down
with them.
Goldman Sachs believes the financial crisis that started in 2008
has entered its third and final
phase. Their view is that it won’t
be over until all of the excess lending in emerging markets is worked
through, and losses taken.
This phase will include super low
commodities prices and low global
inflation. This is already happening,
as you can see on Chart 3. Inflation
November
13, 2015
Volume
34 Number
11
is at zero, or it’s
negative in most
countries.
In the U.S.,
producer prices
dropped more
than 1% and consumer prices had
their biggest drop
in eight months.
Again, this is
much too deflationary.
CHART 1
MARKETS DANCING TO
INTEREST RATE TUNES
U.S. DOLLAR
MAR
INDEX
U.S. dollar is a
key
30 YEAR YIELD
GOLD PRICE
C
B
DOW JONES
INDUSTRIAL
AVERAGE
D
DAILY PRICES
O N
2014
D
J F
2015
M
A
EURO STOXX 50
US Housing
crisis
M J J A S O
AdenOriginalChart
B
European sovereign
debt crisis
MSCI EM
2005 2006
2007
2008
2009
2010
2011
2012
2013
Source: Datastream, Goldman Sachs Global Investment Research
Now, we’re not telling you this to
scare you... not by any means. In
fact, we find it annoying that there’s
always so much gloom and doom
out there. But we do want you to be
aware of some of the warning signs
hanging overhead.
On the other hand, we also want
to point out that, overall, things are
looking a lot better than they did
before. In the U.S., for example, unemployment has dropped to 5%, job
growth is up strongly and real estate, which tends to be a leader for
the economy, is still doing well.
Despite the debt load and slower
economic growth, consumer sentiment is up, businesses are profiting
and the economy could keep chug-
Editors:
2
2014
2015
ging along, like it’s been doing for
several years now.
Ed Yardeni calls it a Twilight
Zone economy, between boom and
bust. And he notes that it can probably keep going in this Twilight Zone
for a long time.
In other words, we could be in for
years of slow, but relatively steady
growth. Many other mainstream
economists agree.
Meanwhile, China is still growing
at nearly a 7% rate. And while this
is among the highest growth rates in
the world, it’s China’s worst performance since the financial crisis.
Nevertheless, it’s good for now
and this too should keep the global
economy plugging along.
As for the markets, read on to
see what’s happening and where
they stand...
CHART 3
CONSUMER PRICES
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Mary Anne Aden
33102-5331 or E-mail [email protected] Questions will be answered in future issues. Copyright Aden Research
Pamela Aden
2015. All rights reserved. The Editors may have a position in the securities recommended and may change such posiwww.adenforecast.com tions without notice. This publication’s sole intended purpose is to provide investment-related information and opinions
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November 13, 2015
EM wave
S&P 500
GO WITH THE FLOW
A
D
The EM wave is the third wave in the Global Financial Crisis
Total return by index, 2005 = 100
In addition,
the strong U.S. dollar is hurting
the emerging countries, especially
those with a big part of their debts
denominated in U.S. dollars. And
as the dollar gets stronger it makes
repayment more difficult.
That’s one of the main reasons
why no one wants the dollar to get
too strong. It’s too dangerous.
The bottom line is this... depending on how the world’s largest
emerging markets handle themselves
in the months ahead will determine
how the global recovery evolves. It
could make it or break it.
JUN
A
CHART 2
PERCENT CHANGE
ON A YEAR EARLIER
AdenOriginalChart
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Copyright Aden Research
U.S. & WORLD STOCK MARKETS
More Cons than Pros
The stock market surged higher
this month. With the Nasdaq leading the way into bullish territory, it
pulled a couple of the other stock
indexes along with it.
CHART 5
BEAR MARKET RISE OVER
MIXED MARKET
The Dow Industrials and the
S&P500, for instance, overshot their
65-week moving averages, but now
they’re back below them (see Chart
4). This received a lot of publicity
about how this new bull market
was evolving.
But wait a minute...not so
fast...
What was rarely mentioned was
that most of the stock indexes did
not follow through. They lagged
behind, staying well below their 65week moving averages.
The Dow Jones Utility Average
provides one example. Since this
moving average identifies the major
stock market trend, this shows that
the major trend remains bearish,
despite the recent rises.
SIGN OF CAUTION PERSISTS
So the end result is that only the
Nasdaq is bullish, above its moving
average. The rest of the indexes are
bearish. This alone is a strong sign
of caution.
For now, there’s no question that
the stock market’s upmove has been
rise in the global stock markets was
also positive.
On the downside, however, nagging doubts persist. Thus, the tug
of war...
AdenOriginalChart
impressive. It went up further and
faster than we expected.
This was mostly thanks to low
interest rates, promises of further
easy money from the Eurozone,
lower interest rates in China, better
earnings and a general feeling the
economy was going to be okay with
no recession in sight. A rebound
As you can see on Chart 5, the
Dow Industrials is extremely overbought in the short-term.
This tells us the stock market
is likely headed lower in the weeks
ahead. If so, would that end up
being a normal downward correction, or the resumption of a bear
market?
We’ll be watching the 17500 level
on the Dow Industrials, which is the
65-week moving average. If it now
stays below it, the Dow will remain
bearish and the recent rise will have
been an overshoot.
Reinforcing this, note that the
Dow Transportation Average has
stayed bearish all along (see Chart
6). It did not confirm the rise in the
Dow Industrials. This signals that
Dow Theory is still bearish.
Writing in Dow Theory Letters,
Jon Strebler points out that we’d
need to see new all-time highs in the
Dow Industrials and the Transports
in order to clearly spell the end of
the bear market signaled this Summer. He also notes that this isn’t
probable anytime soon.
CHART 4
STOCK MARKET: Mixed
NASDAQ
COMPOSITE
S&P 500
DOW JONES
UTILITY
AVERAGE
GERMANY
DAX
BRAZIL
BOVESPA
AT 2047
AT 4825
AT 52000
AT 583
65 WEEK MOVING AVERAGE
2014
2015
Copyright Aden Research
AdenOriginalChart
2014
2015
2014
2015
3
2014
2015
2014
2015
November 13, 2015
CHART 6
DOW THEORY BEARISH
DOW JONES
INDUSTRIAL
AVERAGE
65 WEEK MOVING
AVERAGE AT 17500
started in 2009, thanks to
QE and super low interest
rates.
And assuming a bull
market in stocks is still
in force, it’s already lasted
over two years longer than
the average bull market
since World War II. So
the market is on borrowed
time.
CHART 7
2009
STOCKS VULNERABLE
DOW JONES
TRANSPORTATION
AVERAGE
At 8550
AdenOriginalChart
2012
2013
2014
2015
MARKET IS EXPENSIVE
This makes sense when you
consider that stocks are also expensive. In fact, they’ve only been
more expensive prior to the crashes
of 1929, 2000 and 2008. This alone
warrants heavy caution.
Plus, Standard & Poor’s has
downgraded nearly 300 companies so far this year. These are A
the most downgrades in any year
since the Great Depression and
it’s telling us the financial health
of these companies is worsening,
which is not a good sign for the
overall economy.
Investors are still concerned
about economic growth, especially
since this has been the slowest recovery in more than six decades.
They’re worried about China,
wondering if it’s going to be able
to keep it together or not. They’re B
concerned the strong U.S. dollar could make matters worse,
and they’re very worried about a
possible interest rate hike, which
would likely throw a real wrench
into the mix.
Low interest rates have been
the primary fuel keeping the stock
market rising (see Chart 7).
Following the last financial crisis in 2007-08, a new bull market
November 13, 2015
Okay, so what happens
if the Fed hikes interest rates in December?
Even if it’s just a small
hike, we’re pretty sure it’ll
spook the stock market.
In fact, the stock market is already stalling on the anticipation of higher rates. And with
all of these other bearish factors
coming into play, it wouldn’t take
much to give the stock market the
initial push down the hill.
All things considered, you can
understand why we continue to
recommend staying on the sidelines. The stock market remains
high risk and we don’t think it’s
worth taking a plunge into this over-
2009
AdenOriginalChart
bought market at this time.
THE DOWNSIDE
That’s not even mentioning the
possibility of a major crash, similar
to 2008.
With that in mind, we’ll want
to keep an eye on Chart 8. As
we showed you last month, the
S&P500 and its leading indicator
have formed a similar pattern as
they did prior to the steep stock
market drop in 2008 and 2000.
(Note the recurring 1,2,3 and 4 up
and down movements.)
CHART 8
If this proves to be the
case,
then a #4 decline is
IS BULL MARKET OVER?
just beginning. And if so,
3
we could be in for a sharp
S&P 500
stock market drop in the
3
3
year ahead.
1
1
4?
2
2
4
L
ANNE
4 UPCH
AR
21 YE
LEADING INDICATOR: Still losing steam
(LONG-TERM)
1
3
MAJOR 1 HIGH
AREA
3
3
2
MAJOR
4
LOW
65 WEEK MOVING AVERAGE
95
00
05
4
2
4?
AREA
4
AdenOriginalChart
10
15
STAY FLEXIBLE
We’ll soon see how this
upcoming price action unfolds. But also keep in
mind that the stock market
has come back strongly in
many cases and ongoing
strength cannot be ruled
out.
So stay flexible and keep
an open mind. In these
times of massive manipulation, anything is possible
and we’ll go with whatever
comes our way.
For now though, watch
the show from the sidelines
and be ready for either
outcome.
Copyright Aden Research
U.S. INTEREST RATES AND BONDS
Interest rates to rise?
Interest rates. Who would’ve
thought they’d become the most
important thing in the financial
world. And who would’ve thought
Janet Yellen would’ve become the
most important market mover!
CHART 9
A
DOWNWARD BIAS
2007
10 YEAR YIELD
THE PENDULUM SWINGS
In many ways, we can understand this. Why? Because we’ve
65 WEEK MOVING
cared about interest rates for over
AVERAGE
30 years.
2012
We know that may sound strange
LEADING INDICATOR: Neutral
B
and some of our friends make fun of
(MEDIUM-TERM)
us because of this. But back when
BONDS
TOO
HIGH
we were first starting out in this
business, we learned the importance of interest rates.
Most impressive, they do move
all of the markets, in one way or
another. And even though it’s been
nearly four decades since they’ve
BONDS
TOO LOW
had the clout they currently have,
we remember the late 1970s very
AdenOriginalChart
well.
07 08
09 10
11
12
13
14
15
T-Bills soared from under 5% to in 2007-08 (see Chart 9).
almost 18% in five years. Not only
During this time short-term inwas the move phenomenal, but it
terest rates have stayed near zero.
was also our first time making big
But they’re now moving up (see
money in the investment world.
Not bragging, but our research Chart 10). Still, they remain below
showed that interest rates were go- 1/10 of 1%, but this could be a sign
ing to rise a lot further. So we took the Fed will raise interest rates next
our meager savings and bought month.
interest rate futures. We were RATES NEAR ZERO FOR
stunned as our couple thousand REASON
dollar investment soared to about
Overall, however, the main rea$75,000.
son why rates have stayed low is
Wow! What an initiation. But it because the global economy has
also left a lasting impresbeen struggling and deCHART 10 flationary forces have
sion on how powerful interest rates can be, going
intensified.
T-BILLS (90 DAY)
either up or down. This
Due to bloated debt
is something we’ve often
levels, growth hasn’t takdiscussed and we’re now
en a firm grip, despite all
seeing it again.
the various QE stimulus
Okay, so back to toprograms put together in
day’s reality... What’s
attempts to kick start the
going on?
economy.
As you’ll recall, interIn other words, the
est rates have been under
world economy hasn’t
steep downward pressure
been strong enough to
2015
since the financial crisis
AdenOriginalChart
Copyright Aden Research
5
handle rising interest rates. With
global growth the weakest since
2009, rising rates could push the
world into recession and that’s
something no one wants.
So interest rates around the
globe have remained near zero for
the past seven years and at 5000
year lows!
That made U.S. government
bonds attractive (see Chart 11). In
a world filled with uncertainty, U.S.
bonds have been a safe haven.
And even though the U.S. has
been struggling too, it’s generally
been viewed as the best option.
For these reasons, we’ve continued to believe the Fed will not
be raising interest rates any time
soon and we’ve remained bullish on
bonds. In recent weeks, however,
things changed.
FED CHANGING COURSE?
Even though the Fed kept interCHART 11
AdenOriginalChart
November 13, 2015
CHART 12
30 YEAR YIELD
AdenOriginalChart
DAILY
PRICES
est rates unchanged, Yellen sent a
strong signal that interest rates will
likely move higher in December. The
Fed’s been saying higher rates are
coming all year, but this time the
message was more precise and the
markets believed it.
This led to a short-term burst of
enthusiasm.
The 30 year yield surged to a
four month high, further fueled by a
much better than expected jobs report (see Chart 12). This suggested
the economy is indeed getting stronger, despite the slow growth of 1.5%
in the third quarter.
Nevertheless, you can see on
the chart that the mega trend is
still down for interest rates (up for
bond prices).
That’ll continue to be the case as
long as the 30 year yield stays below
its 80-month moving average, now
at 3.55%.
Currently, however, rates are
stalling at their resistance levels,
which are 2.30% for the 10 year
yield and 3.10% for the 30 year.
But as we mentioned last month,
we have to stay flexible and go with
what the Fed is dictating.
So despite the fact that the leading indicator for bond prices could
rise further, bonds may not oblige
(see Chart 11).
We’ll soon see but in the meantime, we’ll continue to keep our
bonds as long as the mega trend is
going our way. At this point, however, we wouldn’t buy new positions.
CHART 13
US. DOLLAR AND BONDS...
A
U.S. DOLLAR
INDEX
MAR
CHART
DOLLAR BELOW
MARCH HIGHS WHILE
BONDS DECLINE
B
U.S. BONDS
L.T. GOVT
KEEP AN EYE ON MEGA TREND
On the other hand, if the 30
year yield were to rise above 3.55%
it would be a huge deal. It would
mean the mega trend since the
1980s was changing from down to
up, and we’d then definitely want to
sell our bonds.
This would mean that deflationary pressures will likely be coming
to an end, implying the risks of a
depression are easing.
So there’s a lot riding on that
one number... 3.55% on the 30
year yield is THE number to be
watching.
Meanwhile, the higher interest
rates and the anticipation that
they’re going even higher, has given
the U.S. dollar a real boost (see
Chart 13).
But as you’ll see next, the stronger
AdenOriginalChart
A S
2014
O N D
J F M A M J
2015
J
S
O N
dollar is a big problem for the Fed.
Not only does it threaten the U.S.
economy, but it makes the global
economy more vulnerable too.
And since no one really wants a
strong dollar, the Fed may have to
swallow their words once again in
December.
That is, they may be forced to
keep interest rates right where they
are, like they’ve been doing for the
past seven years.
We’ll know soon enough how this
unfolds, so stay tuned.
CURRENCIES
U.S. dollar: Flexing muscles... but for long?
The U.S. dollar moved up strongly to a seven month high. It was
mainly boosted by higher interest
rates, better economic signs and its
safe haven status.
Even though the overall signs
were mixed, the dollar tended to
ignore the bad economic news and
it focused on the good news. Also
boosting the dollar was the action by some of the world’s central
November 13, 2015
banks.
CURRENCY WARS CONTINUE
In an effort to strengthen its
economy, China cut its two key interest rates. And the European Central Bank (ECB) said they’re willing
to use all of the instruments available to increase economic stimulus
in December, if needed.
This weakened their currencies,
6
which is what they want in order to
remain competitive. In Europe, for
example, manufacturing is stronger and exports have improved,
and that’s making the ECB happy.
China is hoping to do the same to
help its slowing economy.
In the U.S., it’s the opposite story. The stronger dollar is a bummer
because instead of making things
easy, it’s essentially tightening mon-
Copyright Aden Research
CHART 14
THE LAST 12 YEARS
U.S. DOLLAR INDEX
A
80 MONTH MOVING AVERAGE
65 WEEK MOVING AVERAGE
2008
B
7 YEAR
D
UPTREN
LEADING INDICATOR: Holding at major
(LONG-TERM)
high all year
MAJOR
HIGH
AREA
tries.
So in this risky environment, will the Fed take the
plunge and raise interest
rates? That’s the big question
and we’ll all be waiting to see
how it works out. If it does,
the U.S. will have a big edge
over rates in other countries,
making it even stronger.
You’ll remember last
month the Fed said that
global economic and financial
developments were influential
in their decision not to raise
interest rates. That was a first
and it could happen again in
December.
CHART 15
SECOND TO THE DOLLAR
A
BRITISH POUND
CHART
65 WEEK MOVING
AVERAGE AT 1.5530
7 YEAR
2008
B
D
UPTREN
LEADING INDICATOR:
(Long-Term) On the rise, turning bullish
BP HIGH AREA
U.S. DOLLAR: Overbought
Looking at the U.S. dollar index on Chart 14A, you
can see why this may end up
being the case, surprising
MAJOR
LOW
AREA
everyone.
AdenOriginalChart
Note that despite this
04 05 06 07 08 09 10 11 12 13 14 15
month’s rise, the dollar index
is still looking toppy. The
etary policy.
same is true of its very overbought
STRONG DOLLAR: Not welcome leading indicator, which reinforces
As we’ve mentioned many times, that a top is forming.
this makes U.S. products more
But until the dollar starts headexpensive for foreign buyers. And ing down, we’ll continue to recomsince many countries are already mend keeping more of your cash in
in trouble, it makes U.S. products U.S. dollars.
less attractive.
Even though sitting in cash
The strong U.S. dollar is also may not seem very exciting, there
keeping a lid on inflation, as well are times to be in cash and there
as economic growth, import prices, are times not to be in cash. This is
corporate earnings, commodity clearly a time to keep a large cash
prices and it’s fueling deflation pres- position and that’s what we’re recsures.
ommending.
And as we previously mentioned,
With so many of the markets
it’s also hurting the emerging coun- either weak, volatile or vulnerable,
B POUND TOO LOW
AdenOriginalChart
08
09
10
11
12
13
14
15
this is a time to mainly stay on the
sidelines while you wait for good
investment opportunities. So cash
is currently king. And the cash king
is the U.S. dollar. For now, here’s
what we’re watching...
The dollar index has strong resistance at the 102 level and there’s a
good chance it’ll stall there. If not,
then it’s headed a lot higher with all
the risks that it entails.
On the downside, 93 is still the
key number. If the dollar index declines and stays below that level,
it’ll be embarking on a significant
drop.
CHART 16
DEFLATION AND U.S. DOLLAR: Go hand in hand
EURO
JAPANESE YEN
CANADIAN DOLLAR
AUSTRALIAN DOLLAR
65 WEEK MOVING
AVERAGE
2014
2015
Copyright Aden Research
2014
2015
2014
2015
7
2014
U.S. DOLLAR
102
INDEX
AdenOriginalChart
2015
2014
2015
November 13, 2015
CURRENCIES BOTTOMING
Once that happens, the major
currencies will move higher, chalking up some good profits (see Chart
16). Currently, they still appear to
be bottoming but that may not be
the case for long.
Most interesting, the British
pound is turning bullish this month
and it may be leading the way for
the others (see Chart 15).
Note that its leading indicator
has risen above the zero line, signaling a higher pound ahead. That
will be confirmed on a sustained rise
above 1.56 for the British pound.
Once that happens, the euro
won’t be far behind. And a new bull
market will be confirmed if it can
break above 1.1550.
At that point, the other currencies will join in too. The Canadian
dollar, for example, has been holding
up well this month considering the
weak oil price.
But it got a boost from the election of Justin Trudeau, basking in a
sense of renewal as this new, young
Prime Minister takes over the Canadian reins.
So all things considered, we still
think it’s a good idea to keep a good
part of your cash divided between
the British pound, the euro and the
Canadian dollar and/or their ETFs,
which are FXB, FXE and FXC.
And then depending on how
these markets perform, we’ll either
sell the currencies if the U.S. dollar
moves significantly higher, or we’ll
buy more currencies if the dollar
weakens.
That’s basically our strategy for
the months just ahead but in the
meantime, we’ll stay hedged with a
foot in both doorways.
METALS, NATURAL RESOURCES & ENERGY
Gold sells off while demand grows
Gold rose to a four month high
in mid-October, just as it started to
trade higher for the year. Investor
sentiment had been leaning on the
likelihood that rates wouldn’t rise
before year end. This slowed the
dollar and kept upward pressure
on gold.
But then sentiment made an
about face, at just about the time
gold’s rise since July was maturing.
Gold rose about 10% from the lows
to the October highs. But U.S. inflation data turned down the heat
on gold making it even more vulnerable to the whims of the Fed.
Gold has essentially been under
pressure all year on the threat that
interest rates would rise at each
Fed meeting, and so far it’s all been
in vain.
That is, gold has been under the
Fed’s thumb all year. Gold’s role as
a safe haven in times of turmoil has
taken a back seat to the Fed.
Gold has basically been trading
as a proxy for expectations of U.S.
interest rates. All of the financial
markets are waiting for the Fed to
act in December after keeping interest rates (short-term) near zero
for years.
This waiting game has been
overpowering strong demand, and
any other influence on gold. The
big question now is, how will gold
November 13, 2015
react to a slight fraction of a 1% rise
in December?
Our guess is that gold could
initially decline on the news. But
CHART 17
INFLATION-DEFLATION
BAROMETER
it then may have a chance to move
in synch with normal market forces
in 2016 when reality sets in.
Just like ‘tapering’ influences
stopped being a super focus last
year, we could see a similar shifting focus in 2016 with interest
rates. Will QE then come back?
We’ll see.
Even if rates are raised a bit,
they’d still be at historically low
levels, and they could stay in a low
area for a good part of next year.
This would then still be a friendly
environment for gold.
INFLATION COMING?
2010
GOLD TOO
HIGH VS BONDS
GOLD OVERSOLD VS BONDS
2008
05 06 07 08 09 10 11 12 13 14 15
AdenOriginalChart
8
And if the U.S. dollar is indeed
topping, we could also see some inflation return next year as well. This
would be bullish for gold.
The bond market fell with gold
over the last several weeks. And
interestingly, Chart 17 shows that
gold is oversold versus bonds. That
is, gold is bottoming and poised
to outperform bonds in the year
ahead.
Since this is a good inflationdeflation barometer, it may indeed
be saying that inflation could come
back to the scene, and possibly
push deflationary pressures back.
We’ll soon see.
Ever Growing Demand for Gold
Demand is growing by individu-
Copyright Aden Research
Russia and China are increasing their gold reserves
BEAR MARKET: CLOSER LOOK
every month. (In Russia,
SEPT 2012
their gold reserves jumped
GOLD PRICE
over 50% in four years from
October 2011 to October
23 MONTH MA
2015. While in China, gold
AT $1223
reserves were increased by a
big 57%.)
Asian central bankers are
acknowledging the role of
gold in finance. While in Europe, slowly more countries
are repatriating their gold
LEADING INDICATOR:
from the UK and the US.
(MEDIUM-TERM)
And now India just put
into
effect a gold-deposit
‘B’ decline underway
plan. It’s a gold monetization
program, enticing individuals
GOLD
HIGH
AREA
to deposit their gold into the
banks and interest will be
paid on that gold deposit.
Then at maturity they
can either redeem the gold
or cash. The banks holding
GOLD
LOW
AREA
the bullion will be free to sell
or lend the gold to jewelers,
DAILY PRICES
AdenOriginalChart
thereby boosting supply.
2011
2012
2013
2014
2015
India is one of the largest
gold consumers in the world,
als and central banks alike.
so it’ll be interesting to see how well
Demand for gold bars and coins this is received.
surged 207% during the third quarThe wedding season is also startter, according to the World Gold ing. And the festival of Dhanteras
Council. The turmoil in the mar- in November includes the biggest
kets, while gold was cheap, caused gold-buying day in the year because
Americans to run to gold in a way
not seen since the 2008 financial
crisis.
CHART 18
it’s considered to be an auspicious
day to purchase bullion.
Overall, changes are happening,
but at a slow and steady pace.
Gold Timing: ‘B’ decline on the
line!
So here we have it once again,
like a broken record, gold fell
sharply and it’s now slipping below
the July lows. Chuck Butler calls
these sell offs “funny trades” that
seem to slip through the back door
and they’re all on paper.
Or could it be that Venezuela
has been forced to sell their gold
to pay off their debt? But for whatever reason, a ‘B’ decline is now
underway.
Chart 19 shows gold’s full bear
market and its A-D pattern. We
believe this month’s decline is key
just as the upcoming rise we call C
will be a key as well. They’ll both
tell us how weak, or not, gold will
be going forward.
With the current B decline slipping below its July lows, if gold now
stays below $1080, then we could
see a washout to possibly $1050.
This would be a weak decline, which
is bearish.
Note how weak the prior C rise
was this year. It barely rose and it
was lower than the C rise in 2014.
Plus, the latest D decline hit a new
bear market low last July. This was
CHART 19
CENTRAL BANKS CONTINUE
TO BUY
And central bank demand for
gold is also growing a lot. Chinese
demand is poised to surpass the
record sales in 2013 when all of Asia
rushed to buy physical gold.
And now, following the wild
swings in the Chinese stock market
and the devaluation in the yuan,
demand for gold grew. Gold imports from Hong Kong reached a 10
month high in September and it’s
poised to jump 25% in this second
half of the year.
Koos Jansen, of Bullionstar.
com, says many central bankers
are accumulating gold in a slow and
attentive change to a new system,
avoiding the U.S. dollar.
Copyright Aden Research
AdenOriginalChart
9
November 13, 2015
bearish action.
The only bright spot was the
10% rise during the ‘A’ rise from
July to October.
Interestingly, this B decline
could end around mid-December
when the Fed announces its plan
for interest rates. But for now,
gold is weak in the B decline by
staying below $1125.
Once this decline is over,
a C rise will begin that could
start the new year off on a
bright note. We’ll then see if
gold can surpass $1180, last
month’s A peak, and especially
if it’s able to rise and stay above
$1223.
This is the mega downtrend,
the 23 month moving average. Once
this moving average is surpassed,
gold will turn bullish.
C rises tend to be the strongest
intermediate rise in a bull market.
This is when gold reaches new highs,
or at least it surpasses the prior C
peak. In this case, that May high is
at $1230. To completely turn bullish, a gold price above January’s
high at $1300 would do the trick.
We’ll also be watching to see if
gold closes up for the year.
If gold closes above $1186 on
December 31st, it’ll be the first up
CHART 21
TESTING LOWS
AdenOriginalChart
November 13, 2015
CHART 20
SILVER PRICE
SINCE 1970
AdenOriginalChart
year since 2012. That too would be
a good start to a turnaround!
Interestingly, even though gold
peaked in 2011, it didn’t close down
on a yearly basis until 2013 (see
Chart 19). That is, it’s been down
for two years 2013 & 2014. If 2015
closes down, it’ll make the third
down year for the yellow metal. This
is something gold hasn’t done since
the 1996-1998 time period when
tech stocks were soaring.
We’ll soon see how this year
fares, and how bad, or good, the
bear market is. The bottom is getting closer, however, and the big
picture is telling us to get ready for
a change next year.
coincided with the lows of the financial crisis in 2008... just a few
months short of eight years.
And now, counting eight years
thereafter, you come to next year,
2016. In fact, it’s completing
seven years this month. So assuming gold bottoms leading up
to the eight year mark, you could
say gold is getting closer to a bottom area.
The last low is NOW, which is
a bit early, but a possibility.
Once this low is established,
which could be at any time, the
next D decline will be key to see
it if holds above the current low
area.
We also have our stepping
stones in place on the way up, as
we mentioned: $1223, $1230 and
$1300. Then once gold rises back
above the prior two peaks at $1400,
it’ll be off to the races and the old
support at $1536 would be the next
target.
A major peak could occur near
the year 2020. And at that point,
the gold price could easily be well
above the record highs.
This is why we recommend
buying some gold and silver on
CHART 22
Gold’s big picture: 2016 a turnaround year
We all know that a strong dollar,
a solid global economy and higher
interest rates are bad for gold. But
we also know the dollar is closing in
on a strong lid, the global economy
is sputtering and interest rates are
still in a mega downtrend.
Will this continue for 2016? We
think so, which will be good for gold.
And at some point next year, we
could start to see a major change.
Chart 20 gives us a good bird’s eye
view.
Our older subscribers know
this chart well. It shows how cyclical gold has been since the late
1960s. Note that gold has reached
a low period every eight years, give
or take some months (see the red
numbers). The last eight year low
10
AdenOriginalChart
Copyright Aden Research
CHART 23
THE DREADFUL SLIDE
PALLADIUM
GCC COMMODITY
PLATINUM
JUL 2014 = 100
JUL
2014
AdenOriginalChart
2015
weakness, if you haven’t bought
already. Buying at today’s levels is
a good way to average in, and to buy
on any more bouts of weakness.
Silver: Testing August low
Silver is interesting. Even
though its premium is still trying
to normalize due to the shortage
several months ago, it’s weaker than
gold. It’s under pressure from the
resource sector, just like platinum
and palladium are.
Chart 20 shows silver’s big picture since 1970. It fell from the
$48+ peak in 2011 to the $14 level
last August, losing over 70%. But as
you can see, it’s now holding at the
mid-channel line. And according to
the short term indicator, it looks like
silver will hold near this low.
Chart 21 shows silver closer up,
the last 2+ years. The 65 week moving average is the key downtrend,
and silver will stay bearish below
it at $16.25. But let’s now see if
$14 can hold, especially since the
indicator fell to a low area.
Gold shares: Bombed out
support level.
So watch105 and 125 this month
whichever way it breaks will determine the next short-term trend
direction.
On a bigger picture basis (above),
you can see the true bombed out
nature for gold shares. This year’s
fall took the cake.
The key here is the 65 week moving average. It identifies the major
downtrend and gold shares will stay
bearish until this moving average is
surpassed, now at 162.
If you’d rather wait for a bullish turnaround to buy more gold
shares, then this is the key number
to watch.
Overall, we think it’s best to ride
through any further weakness. As
a longer term investor, this is not
the time to be selling. And while
our positions are down, we would
continue to hold at this time.
Resources: Down and out
COMMODITIES 2015
BASE METALS
TIN
ZINC
NICKEL
AGRICULTURE
RICE
CORN
LUMBER
COFFEE
100 = JAN 2015
AdenOriginalChart
2015
The resource and energy sector is feeling the heat this month.
Copper fell to a 6 year low while
platinum and palladium followed
suit, reaching 7 and 5 year lows,
respectively.
Chart 23 shows the slide. It’s
the classic look of the market today. Copper and crude oil are the
best examples of deflationary times.
Chart 25 shows they’re both having
trouble rising back above their 15
week moving averages.
Crude is following copper down
as it gets closer to its major support
at $40. This is a mega key area for
oil, and it’s an important number to
keep an eye on this month.
Falling energy, along with the
interest rate speculation, is also
hurting the stock market.
What can we say about gold
shares? They are oversold
by any measure, like we’ve
been pointing out in recent
IN
months. The HUI gold bugs
CRUDE
OIL
index has been holding above
the lows for 3+ months now
AT $45
(see lower Chart 22).
In fact, this chart tells the
story best. This close up view
shows how well the 5 week
DAILY
moving average identifies the
PRICES
short term trend. It’s now
$40
below it but the support at
105 on a close is an important
MAY 2014
2015
Copyright Aden Research
CHART 24
THE
11
Currently, crude is forming a
sideways band between $40 and
$60. U.S. supplies are rising for
a 7th straight week and the EIA
reported a higher than expected
rise for early November. They also
warned that an oil supply glut will
continue in 2016.
This along with OPEC reporting
that its members pumped the most
crude in three years, will continue
to keep a cap on the oil price.
They believe the oil market would
start to rebalance next year amid a
declining dollar. This is yet another
reason why the dollar is too high.
Chart 24 tells an interesting story. The base metals are down with
copper as China’s slowing economy
is cutting into these imports. But
according to Bloomberg, the services and agriculture exports to China will grow
CHART 25
10% annually, while iron
PITS
ore exports stagnate. This
could be why we’re seeing
COPPER PRICE
the grains bottoming.
AT $2.30
The resource sector,
overall, appears to be near
the lows, and while they
15 WEEK
could stay depressed a
MOVING
while longer, we think it’ll
AVERAGE
be within a year when we
see some stability and botAdenOriginalChart
toming. We’ll be watching
from the sidelines.
MAY 2014
2015
November 13, 2015
OVERALL PORTFOLIO RECOMMENDATION
PRECIOUS METALS, ENERGY, RESOURCE
45% Cash
40% LT U.S.
Gold’s ‘A’ rise is over. After a 10% gain up to mid-October, gold made an about Gov’t Bonds
25% U.S. dollars
face and fell into the ‘B’ decline. All the metals, resource and energy sectors fell (over 10 year)
20% Euro, Cdn$ &
BPound
together. And it was all to do about interest rates. Will they be raised next month?
We’ll soon see. Gold is now slipping below the July lows, touching a six year low.
If it now stays below $1080, it could slip down further to possibly $1050.
Next year looks set to become a turn around year for gold, and we recommend
15%
keeping your positions. Gold shares are holding at a 3+ month support, like our
Gold & silver physical,
ETFs & gold shares.
positions are, except for RoyalGold.
Interestingly, gold, silver, gold shares and crude oil are all at key levels as we
go to press. Keep an eye on these levels: $1080 for gold, $14 for silver, 105 for the HUI Gold Bugs Index and $40 for
crude. Meanwhile, keep your smaller 15% position in gold, silver and gold shares. Overall, we recommend averaging in
over the months if you don’t have all of your position set, but only buy on bouts of weakness.
U.S. & GLOBAL STOCK MARKETS
The stock market surged this month, but it too is now making an about face. With the exception of Nasdaq, all of the
stock indexes are bearish. For now, the major trend will remain down if the indexes stay below their 65 week moving
averages. These are at 17500 for the Dow Industrials, 2047 S&P 500 and 8550 Dow Transportations. Nasdaq would
resume its bearish trend if it declines and stays below 4825. The stock market remains high risk and we continue to
recommend staying on the sidelines.
CURRENCIES
This is clearly a time to keep a large 45% cash position while you wait for good investment opportunities. So cash is
currently king and the cash king is the U.S. dollar, which surged to a seven month high. But despite this month’s rise,
the dollar is still looking toppy. Nevertheless, until the U.S. dollar index declines below 93, continue to keep 25% of your
cash in U.S. dollars. Also buy and
20% divided between the
OUR OPEN POSITIONS in order of strength per section keep
euro, British pound and Canadian
dollar and/or their ETFs, which are
GOLD AND SILVER ETFs & SHARES
PURCHASE
PRICE AT % GAIN/LOSS CURRENT FXE, FXB and FXC.
NAME
Silver Wheaton
Gold Miners ETF
Central Fund of Canada
Silver (physical)
iShares Silver Trust
Gold Shares SPDR
Gold (physical)
Royal Gold
SYMBOL
SLW
GDX
CEF
SLV
GLD
RGLD
DATE
Jan-15
Jan-15
Jan-15
Aug-03
Jan-15
Jan-15
Oct-01
Mar-14
PRICE
23.05
21.74
13.36
4.93
17.61
125.23
277.25
66.04
BOND ETFs
PURCHASE
NAME
Ultra 20+ Treasury
20+ year Try Bond
10-20 Treasury Bond
SYMBOL
UBT
TLT
TLH
DATE
Feb-14
Feb-14
Feb-14
PRICE
issue date
SINCE BOT
RECOMM
PRICE AT
issue date
% GAIN/LOSS
SINCE BOT
CURRENT
RECOMM
12.40
13.62
10.31
14.20
13.59
103.56
1080.90
36.67
72.36
119.68
134.14
58.00
107.78
125.73
-46.20
-37.35
-22.83
188.11
-22.83
-17.30
289.86
-44.47
24.76
11.04
6.69
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
CURRENCY ETFs
PURCHASE
NAME
British Pound ETF
Canadian dollar ETF
Euro ETF
November 13, 2015
SYMBOL
DATE
FXB
FXC
FXE
Jul-15
May-15
May-15
PRICE
153.18
81.78
110.15
PRICE AT
% GAIN/LOSS
CURRENT
issue date
SINCE BOT
RECOMM
149.14
74.53
105.34
12
-2.64 Buy/Hold
-8.87 Buy/Hold
-4.37 Buy/Hold
INTEREST RATES & BONDS
Interest rates have become
the most important market in
the financial world. They moved
up this month and bond prices
declined, but they resisted near
2.30% for the 10 year yield and
3.10% on the 30 year. They’ll now
likely stay below these levels, but
the mega trend will remain down
for long-term rates even if the 30
year yield were to rise to 3.55%.
Continue to hold your long-term
U.S. government bonds and/or
the recommended bond ETFs,
which are UBT, TLT and TLH. But
don’t buy new positions for the
time being.
Note: Shares, funds & ETFs are
listed in the box in order of strength
per each section. Keep the ones
you have on the list.
Copyright Aden Research