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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 Published monthly by Aden Research. Also includes access to a weekly update $250 per year (U.S. dollars only). Send all customer service or market related questions to Aden Research, Dept. SJO 874, P.O. Box 025331, Miami, Florida 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 to subscribers. FREE WEEKLY UPDATE, Thursdays at 8 P.M. (Eastern time). You can access it through our website, [email protected] http://www.adenforecast.com. To receive the market update by fax every week $160 per year for U.S. subscribers and $260 for subscribers outside the U.S. FASTER NEWSLETTER DELIVERY OPTIONS: Downloading from the website, no extra charge. Fax only, $65 more per year for U.S. subscribers and $170 more outside the U.S. Make checks payable to Aden Research, S.A. 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 The Aden Forecast P.O. Box 790260 St. Louis, MO 63179-9927 1-305-395-6141 In Costa Rica: Ph: 506-2271-2293 Fax: 506-2272-6261 from the U.S. dial 011 first, otherwise dial 00 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