Special Edition On Gold: What Are Long-Term Investors To Do?

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 |  Includes: AGOL, GLD, IAU, OUNZ, SGOL
by: Avi Gilburt

Summary

The long-term market looks bullish.

What are some of the fundamentals indications for that long-term perspective?

What should long-term investors do at this time?

Many of you may read my articles on Seeking Alpha on a regular basis. And, as you may realize, those articles are directed towards shorter-term traders. Those articles are designed to identify short-term trading opportunities for those nimble enough to take advantage of those opportunities.

However, the more sizeable portion of the precious metals market is comprised of longer-term focused investors. Of course, those folks are not as concerned with the week to week gyrations of this market. So, I thought it was about time to provide a larger degree overview of the market for those longer-term focused individuals.

For those that have read my analysis over the last 3 years, you would know that I called the top in the gold market on Seeking Alpha within several dollars of the actual top struck. Furthermore, you would know that two years ago, I noted that the market may be showing signs of bottoming. But, when the market did not provide the breakout signal I was searching for, it made it clear that lower lows were going to be seen. At this time, I have the same perspective.

The long-term picture in the precious metals arena is very bullish, indeed. While I am neither a gold bug, nor a gold hater, I simply recognize opportunities in the metals market and attempt to capitalize. Along those lines, it is quite clear to me that in 2-3 years from now, we will be appreciably higher than we are today.

From a fundamental standpoint, the lower the price of gold drops, the more the miners are squeezed and the less gold will likely be mined out of the ground. This clearly will have an effect upon the supply side of the market.

Furthermore, Hebba Investments just published an interesting article regarding the reduction in gold production, which will likely also have a negative effect upon the supply side of the market. And, as supply continues to tighten, price will likely move in the opposite direction.

Additionally, Zac Mannes has been publishing a very interesting series of articles entitled "Generational Investment Opportunities," which has been focusing on miners and explorers that have potentially bottomed already and have huge upside potential over the next 5-10 years. In both Zac and my opinions, this is the industry one wants to be in for the future, as it has the largest potential price appreciation relative to any other industry we have analyzed. In Zac's latest article, he discusses his recent trip to the Carlin and Cortez Trends in Nevada, which is a must read for anyone interested in the Nevada mining potential.

However, the larger degree sentiment picture seems to require one more flush down in the metals market before we move back into the bull market. This is the ideal situation I am looking at for now, and it is supported by the heavy short positioning of the large commercial traders, as represented in the latest Commitment of Trader reports.

In fact, if we are unable to break out, in a convincing way, over the 140GLD region within the next month, I think we are setting up for that final flush down in the metals. If we do meet my expectations for that final flush down in the metals, my ideal target zone for a bottom is between 95-105GLD. However, I do see the potential for an over-reaction, should support break in a big way, for us to head as low as the 75GLD region.

But, any larger drops from this region should be viewed by long-term investors as a gift from the metals gods. Anything between 75-100 in the GLD should be viewed as a serious long-term buying opportunity, for if you are not going to buy in that region, then you have no business in the metals market.

For those that do not have initial positions in the metals at this time, I would suggest you begin to accumulate long-term positions in the physical metals and not wait for the final flush, in the event that I am wrong and the market has bottomed. You can always hedge those physical positions with puts in GLD. However, I generally do not suggest that long-term investors use the GLD, as it is quite a toxic investment vehicle, for the reasons I discussed in one of my latest public webinars on the metals market. Rather, it may be used as a trading or hedging vehicle, and nothing more.

Again, since I am appealing to long-term investors, if you intend to hedge your physical positions with GLD puts, I would suggest you go out to at least March of 2015, and it may be safer to even go as far out as October-December of 2015. In the event we see a break out signal before we do see those lower lows, then you can always exit your hedges and just ride the long side of the market.

But, I want to reiterate that long-term investors must focus on the forest rather than the leaves or even the trees. The forest is looking quite green at the moment, as long as one has the foresight to look 3+ years ahead in this market. In my humble opinion, we will likely be double the price we are now in gold, if not see even higher levels. In the physical market, my minimum target is $2,500 on the next bigger move up in gold, so you can decide for yourself if it is worth waiting for the final flush or not, as there is always a risk that we will not see that final flush, if I am wrong. And, if we do see that final flush, you can consider it a gift, and simply add to your position. This is how I am personally positioned in my long-term account in both the physical market, as well as selected miners that Zac Mannes has identified for us at Elliottwavetrader.net.

Disclosure: The author is long SLV. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own intermediate term puts on GLD.