Since the precious metals bubble began almost 10 years ago, the
prices of gold and silver have been driven more by fear, greed, and
other emotions than by fundamentals or allegedly rational
Gold pays no dividend and provides no cash flows, actually costs
money to own (storage fees and insurance premiums), and is used in
relatively very little industry compared to other asset classes
such as land, housing, equities, bonds, or even timber. You
simply can't value precious metals the same way you do other
If most gold (NYSEARCA:XME) isn't owned for sound fundamental
reasons, it seems investors must stop trying to value it in
fundamental ways and focus on what really matters when it comes to
the precious metals markets.
What Really Matters with Precious Metals
There are countless examples of "experts" getting the gold trade
wrong as we have highlighted numerous times throughout the years;
one such example was our article, "Is the worst really over for
gold and silver?"
All the gold bugs (NYSEARCA:NUGT) who have been touting gold for
years based on "fundamental" reasons such as the Fed's non-stop
printing press are now getting crushed. They rode the
precious metals bubble falling victim to one of the oldest axioms
on Wall Street, "everyone is a genius in a bull market".
Discussed in our article published on May 6, if the real reason to
own gold is the printing press, then shouldn't the U.S. dollar also
be getting hammered?
How Gold Experts are Misleading the Public
These experts confused their "correctness" through 2011 with
simple correlation of a precious metals market rising because of an
entirely different reason, euphoria (just as has always driven the
In 1999, when gold (COMEX:GCZ13.CMX) was trading at 30 year
lows, no one wanted to touch the precious metal. Contrast
that to 2011 when "sell your gold" commercials were on every
television channel. Those commercials meanwhile can still be
Even central banks around the world were selling gold at its 30
year price low and buying at its all time high.
As an example of just how clueless central banks (and others) have
been when it comes to gold, Ben Bernanke himself said to the Senate
Banking Committee in July, "Nobody really understands gold prices
and I don't pretend to really understand them either". Yet
central banks continue to buy and sell gold.
In July 1999 when Gold was hitting its 30 year price low of
$250/ounce, the bank of England sold a massive amount of gold,
solidifying the reserve banks in history as horrible market
In 2012, when gold prices (NYSEARCA:GLD) averaged $1650/ounce,
central bankers around the world bought 535 tons, the most
purchases since 1964. With gold now below $1400, again the
world's bankers are helping mark the top in gold as they lose over
$500 billion dollars and counting since the great gold peak of
Euphoria and Emotion
As I outlined in our April ETF Profit Strategy Newsletter, released
March 22, 2013 when gold was trading over $1550/ounce, it was no
surprise to us that gold peaked in price in 2011 as euphoria went
"The peak of pop culture's obsession with gold occurred right
around the time that gold prices peaked at $1900 in late
'11. We don't see it as a coincidence that Pawn Stars was
the 2nd highest rated television show in '11 just as another
popular gold focused television show, Gold Rush: Alaska was in
its inaugural season."
Countless treasure hunting television shows remain in popularity
Will History Rhyme?
The precious metals (NYSEARCA:IAU) have always been driven by
euphoria or lack thereof. In 1980, the previous peak in gold
prices sent shares up to $850, also then a record. However,
within two years, gold prices were back below $300, falling over
50% from its peak.
Still today an investor that bought gold in the late 70s would
have lost money after inflation. According to the Fed Bank of
Minneapolis, gold around $1400 today is worth only $464 in 1980
dollars, a far cry from the 1980 peak of $850, proving that even
with the precious metals, there are good times to buy and also very
bad times to buy.
Buying "at any price" is likely a losing strategy, just as it is
with all assets.
If euphoria and emotion are what drive the prices of the
precious metals, then we should use them to help identify when gold
and silver (NYSEARCA:USLV) are good or bad purchases. We
shouldn't rely on fundamentals or other justifications that simply
don't correlate much with price.
Our April Newsletter helped show why gold prices topped out in
2011 and why the precious metals were likely entering a long term
Profiting From Gold and a Long Term Projection
We have been fortunate to capture many of the great gold turning
points (NYSEARCA:GDX) over the past year as my article, "
Is the Great Gold Crash Over?"
outlines a few of them. Much of this was because we
ignored the mainstream media and listened to our unbiased charts
and sentiment measurements.
That analysis helped us capture profitable trades, both long and
short on 7/13, 9/1, 9/15, and 9/18.
Last week, we suggested buying the Direxion Daily Gold Miners
Bear 3x (NYSEARCA:DUST) to take advantage of another opportune
technical setup. That trade was already up over 10% in less
than a week. Our tandem trade of buying Dec GDX
(NYSEARCA:GDX) put options was comparably up 30%.
Gold's long, medium, and short term trend are decidedly down,
and using these charts, history, and sentiment measures help us
target $1,000 for the price of gold.
The chart below of gold's ETF proxy, (NYSEARCA:GLD), helps put
this target in perspective as gold is behaving very orderly from a
Gold's July rally to backtest its trend (shown by the green
arrow) is a key technical setup that we combined with our short
term outlooks to help provide our September short recommendations
when GLD was trading back above $135. Already, traders have
made over 10% from those short recommendations, over 30% if they
used the levered ETFs suggested, and more than doubling their money
if they used levered options.
In reality, a gold decline (NYSEARCA:GLL) of 50%, targeting
$1000, may actually be conservative as the 1980s price action
taught us. Back then, precious metals (NYSEARCA:DGLD)
gave back over 50% of their gains in just two years! But
ultimately, they gave back over 70% by 1985.
Thus far, the gold decline (NYSEARCA:PHYS) has lasted two years,
and prices have been chopped around 40%. Market history, the
charts, and sentiment all suggest this trend should continue until
gold bugs really start to throw in the towel.
At that point it will likely be a good time to buy the metals
again. However, that time could be years away, when the world's
central banks and gold bugs finally completely throw in the
Profit Strategy Newsletter
uses technical, fundamental, and sentiment analysis to keep
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