Gearing Up for $1000 Gold

Trading at $980.

In previous posts I talked about round numbers (and why support and resistance works), and how once a trading vehicle breaks through a BIG round number it can fly (i.e. I expect gold to rip if it breaks through $1000). I mentioned selling $1000 calls and buying lots of out-of-the-money calls as a possible trade.

However, in another post I examined the Gold/Bullion ratio and noticed it is at historically low levels. (GDX seems to me a better way to play this trade. DBP is possibly a more diversified choice.)

Gold is also above its long term moving average, a setup that generates higher returns, lower volatility, and lower drawdowns than buy and hold. But World Beta readers probably already know that, right? This is probably the simplest trade (with objective buy and sell decisions). Long when above the 10-month SMA, in T-bills otherwise:

I am not a gold bug - I follow the same line of thinking of Ray Dalio when he stated in Barron’s, "Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio."

Disclosures: Some clients and family long GLD and GDX. No options positions.

Comments

[donzelion:]

Time to buy gold was in November, when hedge funds were dumping it hand over fist to meet redemptions, and prices dropped below $700 (or $70 on GLD). Buying it now, there's a remote possibility that it will double in the next 2-5 years.

I think that a gold bug would buy gold, regardless of price, because "everything is going to hell." A speculator would buy gold, regardless of price, because "everyone else is doing it." And an investor would buy a little gold as a reminder to be humble, and not to put inordinate faith in one's own brilliance.

Feb 19 06:10 AM

[ROLEXDAYTONA:]

gold will never break 1030$, i am short.

Feb 19 06:55 AM

[Jake Blues:]

Gold's price is mostly reactionary. I don't know how anyone can look at a chart and determine anything.

Feb 19 07:38 AM

[Mad Hedge F...:]

GOLD! GOLD! GOLD! This is the cry being heard worldwide by investors in the Great Gold rush of 2009, looking for a generic “short America” trade. Where in the past gold seekers used sluices, shovels, and jackhammers to extract the glittery stuff in California’s Sierras, Alaska’s Klondike, and South Africa’s Rand, today the instrument of choice is the mouse. Online traders are unleashing clicks by the millions to buy ETF’s, American Eagles, mining shares, and futures contracts. With stock traders sitting on their haunches, wondering if the Dow will hold 7,000, this is the only thing that is working right now. Traders are buying gold more for what it isn’t, than what it is. It isn’t made of paper, made in the US, or held in custody by Bernie Madoff or Stanford Financial. The yellow metal hit a new high for the year of $887 overnight, and the risk of a “melt up” is increasing. The Street Tracks Gold Trust ETF (GLD) is now the seventh largest holder of the barbaric relic in the world. For the newly aggressive, look at the DB Gold Double Long ETF (DGP), which gives you a 200% long exposure to gold.

Feb 19 09:02 AM

[FredTheSpectre:]

It was interesting to see gold and the USD climb together. To me this was saying that the US was losing the devaluation "race to the bottom". I think it will be catching up and soon. I agree: if gold does best its dollar high there is a flood of money waiting.

Feb 19 10:21 AM

[tb1975:]

Gold will break 1030 in March, you are wrong (and short). You've been short since low 800s. How's that working?



On Feb 19 06:55 AM ROLEXDAYTONA wrote:

> gold will never break 1030$, i am short.

Feb 19 11:25 AM

[Trace Mayer:]

Mr. Faber, FYI, GLD is not necessarily gold so in your writings and disclosures it may be good to distinguish between GLD and physical gold.

seekingalpha.com/artic...
seekingalpha.com/artic...

Feb 19 12:59 PM

[mr freddo:]

If not Gold, then what?

Stocks are about to swoon on bad news, crippled financial system, quarterly losses, currency disruptions.

Bonds will fall as interest rates rise, especially longer treasuries.

Having gold as an insurance policy against a complete destruction of paper wealth is prudent and wise.

Feb 19 10:35 PM