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Is gold setting up for a breather? It sure seems that way to me, and I have adjusted my portfolio accordingly. I took profits on nearly all of my gold mining stock positions on Wednesday, and (gasp!) actually have daytraded gold futures from the short side. Here are the signs that concern me:
1. Silver non-confirmation. For the last month, but especially the last few days, silver has noticeably underperformed gold. Coupled with the fact that silver was unable to get anywhere near all-time highs even as gold set records (not inflation adjusted), this is a signal that gold may correct. Of course, like any other divergence it could be reconciled by the lagging instrument catching up, but the divergence does increase the probability that gold pulls back.
2. Junior mining stocks are relatively tepid. Its hard to find a junior mining stock that posted gaudy gains over the past week, even as the metal hit new highs.
3. Gold prices seemed to lose momentum just after they broke to record highs. Could it be that stops were cleared, and now there is nothing to propel gold further in the short term?
4. The anti-dollar trade feels 'very' crowded.
Keep in mind that my analysis focuses on short-term movement. For stock trades, I like to capture 2-6 week swings though I often hold positions for several months. For futures, my holding periods rarely exceed a few days. None of these factors change my long-term bullish outlook for gold. Its just the next few weeks that worry me.
For a longer-term perspective, check out the way that Adam Hewison trades monthly signals on the gold ETF in his "Perfect Portfolio" series (free, reg. may be required). The results are impressive, though obviously aided by some pretty strong trends over the past year. Like most trading systems, MarketClub’s trade triangles are trend-following. They will do well in trending markets and worse in choppy or lifeless markets.
Disclosure: For the moment I’m short gold futures and long USD futures. I am a heavy user of MarketClub (MarketClub’s "Smart Screener" is the technology behind the Century Club scan I use to locate hot microcaps) and also an affiliate.
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This article has 22 comments:
In the world of today, we live in a dicey environment of inflation versus deflation and the "what next lunacy" of the powers that be.
Frankly, I favor an intellectual environment of "cause and effect" and "trends" rather than the emotion infected environment of "profits now" never mind the fundamentals. Of course, each to his own flavor of things. No problem there.
I think the deciding factor is appetite. I do have to admit that there is a rush associated with day trading, however, one has to spend the day hovering over and tracking a number of issues simultaneously and it is time consuming to say the least; a lot like sitting in the casino endlessly watchng the numbers or symbols roll. Just not for me.
Then there is the problem of getting stopped out. Maybe one should say "faked out" . I have had this happen a number of times and to my anquish lost twenty percent on the stop to only anquish further as this was just a temporary dip...then how to get back in...wait for another dip...well, that often is a long wait.
Let's face it, trading and or investing is not for the faint of heart. Sometimes it is a real adrenalin rush and sometimes it is, well, poop. And now, in this time, there is just not a real safe haven as we are all sucked in...no nifty fifties this time around, just wags. Good luck all. This latter for all those who are clued in to something real.
Silver's non-conformation has everything to do with supernatural volume in gold.
The comment about junior miners is completely false.
I agree that a real run for the dollar is coming, but stocks will tank first, followed by a peak in gold.
You should watch more Hewison videos, he suggests gold is on its way to 1200+ short term.
I sold oil against my gold silver and mining longs and it went straight up me *****. I am sticking with it for a bit but wary of further rally in oil.
I like gold because the value of the US reserves at $1000 an ounce is $250bn. If the Chinese offered $1trlln worth Government iou's for the gold ($4000 an ounce) I do not think the US would sell so $4000 here we come. We have know idea what gold fever is
Gold purchased near all time lows generally works out well not at all time highs
As a person who has become financially independent through investing
Jeremy siegel study on the power of reinvested dividends is HUGE
Better way to hedge is to buy large caps multinationals that are priced right
For wondering about the trade of Gold itself - let's take a good look at GLD and see what it is saying. It is just 1.46% off of a recently set 52 week high. It is still trending up: today's price is 103.19, the 20 day MA is 100.4996, the 50 day MA is 97.209 and the 200 day MA is 92.1407. It would have to drop quite a bit to form a Death Cross and be trending down. At this point - it looks more likely to set a new 52 week high than tank downwards. I would not sell short right now. If my portfolio needed re-balancing - I might sell some of my holdings of PMs for cash to re-invest in whatever needs it ( I hold them in the easily traded form of CEF), but I would not sell short at this time. They could very well simply keep going up as the trend says they will.
It is seldom (if ever) wrong to take a nice profit, but selling SHORT is a whole other ball game.
Rather, Ive decided just to long haul it. Had I stayed in positions I took a year ago, I would be doing better than all this trading. So, Im just buying and holding bullion and buying more when I get more funds.
I think that 90% physical bullion is about right, 10% options and stocks. And spending the extra time on important things, women, travelling. The well ballanced man.
In that scenario, US will want gold price to increase.
They cannot tax us enough to pay down this debt in any reasonable time period.
On Oct 16 11:35 AM Charteris wrote:
> Hi
> I sold oil against my gold silver and mining longs and it went straight
> up me *****. I am sticking with it for a bit but wary of further
> rally in oil.
> I like gold because the value of the US reserves at $1000 an ounce
> is $250bn. If the Chinese offered $1trlln worth Government iou's
> for the gold ($4000 an ounce) I do not think the US would sell so
> $4000 here we come. We have know idea what gold fever is
Think of it the same way you would fire insurance.
Shorting is dangerous as hell, unless you are shorting gold and going long silver simultaneously.
My major gains have all accrued from being long, and they typically occur over brief periods.
We saw a 20% total portfolio gain the first two trading days of September 09 simply because we were in precious metal mining shares on those two days.
I'd hate to trade out and be wrong.
I think it's a matter of where one's conviction is.
I happen to think that gold is running up for the better part of the next decade. I'd have no problem shorting the Dow on a failed rally, but look at what has just happened to the COMEX commercial shorts in gold.
By the way, silver trades like a mining stock relative to gold. And our largest gains since September have been in juniors and small producers.
So yes, anything can happen short-term. I guess I am just not a short-term thinker.
That's pretty much a non-issue in my opinion. As recently as July, the gold/silver ratio was 72:1 and in early Sept. it was 58:1. Minor fluctuations are perfectly normal.
>2. Junior mining stocks are relatively tepid. Its hard to find a junior mining stock that posted gaudy gains over the past week, even as the metal hit new highs.<
Who says gaudy gains are required? All are trending up and that's really what matters, no?
>3. Gold prices seemed to lose momentum just after they broke to record highs. Could it be that stops were cleared, and now there is nothing to propel gold further in the short term?<
It's almost assuredly a phenomenon that we see with most breakouts of any stock or commodity. Just a typical re-test. I doubt it'll even fall below $1025
4. The anti-dollar trade feels 'very' crowded.
That's a fact. Of the 4 points, my feeling is that this one is the most legit.