It’s been another fast paced dramatic month so far and the market repercussions are being felt far and wide says Mary Anne and Pamela Aden of The Aden Forecast.
Following the US downgrade by S&P, stocks plunged, bonds soared, and so did gold.
Bonds are clearly bullish and the stock market is bearish, on growing signs the economy is moving toward a recession. Meanwhile, the US dollar is stabilizing, and other currencies appear to be topping.
Earlier this month, we recommended selling the rest of your US, global, energy, and resource stocks. For now, we’re keeping a 35% cash position, and buying long-term US government bonds with 25% of the total portfolio. Continue to keep 40% in your metals-related investments.
Precious Metals
Gold continued to soar, reaching the record-breaking $1,800 level, as it’s jumped over 20% since July 1. Gold has been the shining star in the commodity world, as fear and uncertainty have driven it higher.
Silver was flip-flopping between gold’s strength and the resource and energy weakness, but it remains strong in a now-oversold consolidation area. Perhaps it’s ready to catch up to gold’s rise. Gold shares are similar; they too held above their June lows, and they are stable to firm.
We added Royal Gold (RGLD) to our list in July and suggested buying new positions in it, as well as SPDR Gold Trust (GLD), Central Gold Trust (GTU) and iShares Gold Trust (IAU)… all are doing great. Gold will remain super strong above $1,630, so take advantage of weakness to buy new positions.
If the uncertainty that’s grabbed the world this month dies down a bit, we could see gold fall in a normal downward correction. But even if December gold declines to $1,560, it would still be very strong and in a great buying area. $1,480 and $1,380 are also solid support levels. Keep your positions.
US and Global Stocks
The stock market has been in a free fall, and the major trend has turned bearish. As we said earlier, sell all of your stocks (except for gold and silver shares).
If you haven’t sold yet, it’s not too late…and it’s best to sell on a bounce up. Move to cash and stay on the sidelines. Stocks are likely headed much lower.
For now, stocks have fallen far and fast, so an upward rally would not be unusual, but it’s not guaranteed.
We don’t recommend shorting stocks. The market is too volatile, but when we see a good opportunity to do so, we’ll let you know.
NEXT: 2 More Buys
|pagebreak|Currencies
The US dollar still appears to be bottoming and the currencies topping. If they are, the US dollar is headed higher, as the economy slows and investors move into US bonds. As long as the US dollar index stays above 71.50, it’ll continue building a bottom and a renewed rise would be underway above 76.50.
Currently, we’re keeping most of our cash in US dollars for the time being. Having sold stocks, and since we’re buying bonds, our cash position is now 35%.
We’re also still holding the Swiss franc and FXF, but since it’s so overbought, we may be selling it soon. We recommend selling the Canadian dollar, as well as FXC.
Bonds
Bond prices are soaring as interest rates plunge. Bonds are poised to rise further, and this was confirmed by the Fed… they plan to keep rates low for the next two years.
Plus, the economy is weak, which is good for bonds. With the US dollar also stabilizing, we now recommend buying long-term US government bonds, using 25% of your cash. If you already have bonds, keep them.
We also like American Century International Bond Fund (BEGBX), which gains as bond prices rise. But bonds are currently overbought, and they’re due for a downward correction, so buy gradually over the next month or so.
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