Should goldbugs be scared about falling gold prices?
The "currency of last resort" that was supposed to be a bastion
of safety has spiraled right alongside the euro (NYSEARCA: FXE) and
emerging market stocks (NYSEARCA:BIK). Gold is posting YTD losses
of -7.6% and has reached a crucial tipping point that could take it
into official bear market territory.
Forget Feelings, Prices are What Matters
After increasing in value for 12 consecutive years, overconfidence
among gold investors and traders has reached extremes. Is it
any wonder the gold crowd trades on "feelings" and "hunches"
instead of obeying prices?
According to some experts, gold (NYSEARCA:GLD) was supposed to
soar to $2,000 per oz. because of Europe's banking crisis and
America's debt debacle. Unfortunately, hindsight bias has been
baked into their gold forecasts because they erringly see gold's
recent history as a predictor of its future. Meanwhile,
they ignore price along with important technical indicators.
This sort of flawed thinking is reflected by depressed levels in
gold volatility (^GVZ), which like its counterpart the CBOE S&P
500 VIX (^VIX), still shows a genuine lack of real fear about
"Prices and trends are really the simplest indicators you can
find," said Gerald Loeb. "Profits can only be made safely when the
opportunity is available and not just because they happen to be
desired or needed." This is a similar philosophy to how the ETF
Profit Strategy Newsletter operates.
Early in the year, we alerted readers about discrepancies in the
gold market - especially between gold mining stocks and physical
metals. We also told readers about which side of the market was the
right place to be.
On Feb. 14, via our
Weekly ETF Pick
update we wrote about a high probability setup in the precious
"Despite a rising stock market, the Market Vectors Gold
Miners (NYSEARCA:GDX) has lagged both the broader U.S. stock
market along with the SPDR Gold Shares (
) by a very significant margin. The current downtrend for mining
stocks is still in place. Furthermore, a double digit slide for
gold would likely translate into a 20%+ loss in mining stocks.
This scenario offers some big upside potential for bears. Buy the
Direxion Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST) at
Our DUST trade resulted in a one-week gain of 29%. In the same
update, we also told readers to buy GDX put options with specific
strike price and expirations. Our GDX put options are still open
and are up over +190%.
The ETFS Physical Precious Metals Basket Shares (NYSEARCA:GLTR),
which is a broader measure of the precious metals group and
includes gold, silver, platinum, along with palladium in one
package, is down 7.38% over the past three months.
What price levels do goldand silver need to hold before a
complete breakdown occurs? What levels would signal that a price
rebound is underway?
The April 2013 issue of
ETF Profit Strategy Newsletter
and Technical Forecast examines the precious metals market,
including gold and silver. Also included is our 2013 ranking of top
commission free ETF brokers along with a short, mid, and long-term
outlook for stocks, bonds, and gold.
Watch ETFguide's Video Channel @