The Aden Sisters: Going for the Gold

Some of the canniest Wall Street advisers live far from Wall Street. Contrarian Marc Faber writes The Gloom Boom & Doom Report from Hong Kong; Bob Prechter tracks market gyrations (his so-called Elliott Waves) in the Georgia foothills; chart watcher Jim Stack keeps readers of his InvesTech newsletter out of bear markets while watching live bears from his window in Montana. Not so famous, Mary Anne and Pamela Aden advise on precious metals markets from San Jose, Costa Rica.

Subscribers to The Aden Forecast who acted on the sisters' long-term buy signal in 2003 enjoyed gold's rise from $300 an ounce to its recent poke through $1,200. The Adens also prescribe doses of stocks, bonds, cash, and currencies. In October 2008, at the rim of the sinkhole that swallowed many a retirement account, their model portfolio was 55% cash. It stayed that way for months, until the market bottomed out.

A raucous ride through San Jose traffic leads to the Aden headquarters above town, where calm prevails. The sisters and five employees occupy a bungalow with a central courtyard full of plants. At the end of the day, the duo walk down a lane to magnificent houses where they live side by side. They're both bilingual, sixtysomething, charming, unassuming, and married to lawyers who don't practice law.

UNLIKELY PATHThe Adens ended up tracking gold in Costa Rica through a series of happenstances. Their mother, a Costa Rican aristocrat who raised them in Long Beach, Calif., moved back to Costa Rica in 1970. They joined her full-time in 1973 and began learning the financial markets two years later through John Bryan, a Boeing (BA) engineer who retired to San Jose to tend his ample stock portfolio. Mary Anne programmed his primitive computer to track his net worth, and for four years they sat in Bryan's sparse office, studied markets, waited for his seemingly imaginary Swiss girlfriend to show up, and drank hot Cokes because he wouldn't waste money on a refrigerator.

Their next boss led the Adens into metals. Jerome Smith was the legendary "Silver King" for his calls on the price of silver in the late 60s and 70s. (His cheerleading coaxed the Hunt brothers of Texas into silver, where they cornered the market that ruined them.) While Smith day-traded futures contracts, the Adens studied commodities in his library.

In 1980, Smith had the sisters write an in-depth study of the gold market. His friend Jim Blanchard—another prepare-for-the-worst guy—invited them to speak at a hard-money conference. "After we sold 25,000 copies of our report at $25 apiece," says Pamela, "he helped us launch The Aden Forecast."

Now, for $250 a year, the Adens' 4,000 subscribers get a monthly state-of-the-markets essay, weekly updates, a recommended asset allocation, and a list of Aden-approved stocks and funds. A computer program at Hulbert Financial Digest that tracks a slew of investment letters, pretending to buy and sell everything each letter recommends, shows the Adens with an 8.09% annual gain over the last five years, vs. 1.11% for the Wilshire 5000. When measured against a broad range of rival newsletters over 10 years (as far back as the Hulbert numbers go), the Adens rank 30th out of 86 in the database.

The Adens' biggest goof was in 1983. Gold was at $680 and looking good for the long run. But then-Federal Reserve Chairman Paul Volcker squashed inflation by raising interest rates. Gold sank to half its price and stayed down for 20 years. "We were new at this game," Mary Anne says. "We felt pressure from subscribers who wanted us to stay bullish. We learned a hard lesson: Never argue with reality." When the price breached a level they considered key, they got out and stayed out for most of the metal's two decades of doldrums.

FOLLOW THE WIGGLESIn their shared office, the Adens work at a conference table facing a huge wall of charts, tattered and yellowed like vintage maps of early explorers. Here they follow the wiggles on the trend lines that lead to their decision-making. The TV set shows gold hitting new highs, but the sisters are blasé, since they are in gold for the long haul.

The Adens' advice is based on technical analysis: follow moving averages, watch for a break in a trend line, check momentum to see when a rally poops out. They're alert for any change in a "megatrend"—when the price of an asset breaks out of an established pattern. They're seeing that in 30-year Treasury bonds: A move above a 4.69% yield reversed a trend going back to the 1980s, they say. "Wow. Inflation coming if this reversal holds!" says Mary Anne. As long as gold stays above the major trend line of $935 an ounce, it's in bull mode, they say.

Rising inflation bodes well for gold. The Adens think ballooning interest on U.S. government debt will bring a lower dollar, and gold tends to move opposite to the dollar. Gold's November high represented a 40% gain for the year, compared with 50% to 117% for many other metals. This relative mediocrity, the sisters say, is one reason they remain bullish on gold.

Gold remains the biggest holding in the Aden family portfolio, along with Costa Rican real estate. "We have euros and other stuff, lately more real estate than we should. Gold is the best option," says Mary Anne. Another sisterly tip: Consider retiring to Costa Rica.

    Before it's here, it's on the Bloomberg Terminal.