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RVAspeculator (98.34)

Gold – long term hold, short term reduce

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November 04, 2009 – Comments (15) | RELATED TICKERS: GLD

Anyone who reads this blog knows I have loved gold and been a huge bull since I started blogging a few years ago.  With all the many blogs I have written I have NEVER had a bad thing to say about gold.

I still believe gold will outperform the S&P for the next few years even though it has outperformed for pretty much every year this decade. 

What worries me though is all the “smart” bloggers out here we calling to short gold at $980-$1000, you probably got “bad vibes” if you followed a call like that... 

I’m not hearing ANYONE saying to short gold now at $1100…   The idea that gold is headed to $1400 or $2000 in the short run is common place, the idea that the dollar is toilet paper is common place.  Worse for the gold bulls is the people short gold at $1000 not only have “bad vibes” but have also probably been blown out of their positions by now.  Shorts are the fuel that feeds the fire on the long side…. and fuel the fire it did, from $1000 to $1100 in no time.   I have not seen the latest CTFC report but my bet is short interest on gold has dropped substantially.

The problem is the dollar index hit 75, rallied to 76.5 and now is headed to right above 75 in my opinion to make a short term higher low.  The insane downside momentum has abated even with today’s 1% decline.  When momentum slows the moving averages flatten out and that is how you get rallies… even in something as fundamentally worthless as the US dollar.

If you are a long term investor you can ignore this post…  Longer term the dollar is headed MUCH lower and gold is headed MUCH higher.   If you are trying to time the shorter term swings I believe you might want to look at stepping aside from the gold market right here at $1096 for the short run (few months).

If you are going to do this keep in mind fellow blogger and gold bull (who has gotten this whole move correct) “TMFSinchiruna”’s constant warning about timing the gold market…  it’s tough to do and gold is obviously still in a bull market so be careful out there. 

Just this bloggers two cents, which in March was worth over 2.3 cents before the dollar fell.   :)

Please rec and comment....

15 Comments – Post Your Own

#1) On November 04, 2009 at 12:31 PM, buildgreen (< 20) wrote:

I was looking for some thoughts on this.. the silence of analysis recently has made me wonder if this is a downward signal as well.

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#2) On November 04, 2009 at 12:45 PM, russiangambit (99.02) wrote:

It is really a simple question - what are chances that FED will pick hard road instead of easy one? What are chances that FED will tell Congress "no" and will stop printing money and force balanced budget? The answer is 0%. For this reason, the current trade will continue until there is some sort of a huge external shocks that is ore powerful than the FED. Then the dollar carry trade will unwind and there will be another collapse.

The only hope is that there are no shocks in the foreseeable future - for about a year. Then we might dodge the bullet. If there is any kind of a shock in the next 6 months, it will be  Armageddon this time because FED will not be able to stop it.

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#3) On November 04, 2009 at 1:20 PM, cdulan (94.30) wrote:

I agree with Marc Faber.  Or maybe he agrees with me?  There is too much deflationary pressure coming for there not to be a USD correction.   Emerging markets positions and energy positions need to be hedged quickly while the VIX is still reasonable.

RVA, what you miss IMHO and tons of gold bugs also miss in their analysis is that gold is not primarily an inflation hedge.  It is a hedge against economic instability.  India's purchase today should be viewed as a defensive measure against economic collapse rather than a position against rising commodity prices.   They even said that much in their statement.  Think about it. Commodity price rises are for the most part bullish for India.  Why worry about that?  They don't fear USD inflation, there is no downside for them there.

In any case, I am dollar bull in the short term and a gold bull too.  Stimulus unwind in 2010 will be deflationary, but the magnitude of the effect will keep gold lofty until administration acquieses to another big handout in 2011.

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#4) On November 04, 2009 at 1:40 PM, RVAspeculator (98.34) wrote:

Russian,

Exactly, which is why longer term I am still a gold bull and a dollar bear.  This is just a short term call.  They are not going to do the right thing long term.

cdulan,

Good points.  I agree that it is also a hedge against economic instability but still think the dollar correlation lives.   I don't think gold is going to get hurt nearly as bad as it did last time on the last dollar ramp because of the economic instability aspect to gold.

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#5) On November 04, 2009 at 3:49 PM, TMFSinchiruna (98.48) wrote:

RVAspeculator

I can't argue with any call for a minor pullback here. Tuesday's move was an enormous short-covering event fueled by India's purchase (which proved that IMF gold will NEVER see the open market), but the fact that it coincided with USDX above 76 made me slightly hesitant to expect further inertia beyond $1,100 in the near-term. Keep in mind, however, that we will now have HUGE buying interest at the price level that India paid ... around $1,045. The world's central banks will say: "if it's good enough for India ... " A break below $1,045 would bring $1,000 into view, with $1,023 in between. I now think $1,000 has a great chance of holding as a new long-term floor beneath the gold price, with $980 behind it as my new best-case scenario for all you bargain-hunters out there. As RVA reminds you, though, don't get caught holding no gold just because you expect a certain price. I think it's entirely possible that we'll not see $980 again until after this gold bull market has run its full course somewhere north of $2,000.

But then...  USDX slid below 76 today, and with a thud at that. 76 remains the key pivot point for USDX, which in turn will determine the near-term direction for gold.

At some point, investors in broader equities are going to come smack face to face with the absent fundamental underpinnings for the ridiculous rally, and last week's preview of resurgent volatility will look like a miniature scale warm-up. Panic will come back, as will the notion of systemic risk, and some number of those fleeing investors will undoubtedly flock to Treasuries despite all the fundamental danger signs. BUT, some subset of those fleeing investors will look to bullion this time, and in such a tight physical market it only takes a small number of new investors to stoke significant demand. At that point, when fear drives the fearful out of both stocks and Treasuries, I will welcome you to the next phase of the gold bull market, and you will see the USDX resume its slide despite the falling equities. I don't know when that will happen, but I do think this will occur.

I think what will surprise most Fools the most in the coming year or two is the speed with which gold advances from around $1,250 to $1,650. Once the USDX falls into unknown territory below 71, $1,650 will be close on the horizon.

To help locate favorable entry points within the volatile action ahead, please keep an eye on my silverminer portfolio.  I've been using that portfolio to play some of the shorter-term peaks and values with some success. Just please be clear, as RVA mentioned, that I do not advocate trying to time the gold market. I play peaks and valleys with 5% of my portfolio, while another 80% or so remains doggedly fixed in long-term exposure to further upside in gold and silver. I now have about 10% in cash on the sidelines that I will redeploy gradually on any significant weakness.

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#6) On November 04, 2009 at 4:23 PM, jesusfreakinco (31.54) wrote:

Russian -

The only hope is that there are no shocks in the foreseeable future - for about a year. Then we might dodge the bullet. If there is any kind of a shock in the next 6 months, it will be  Armageddon this time because FED will not be able to stop it. 

- Spot on and Amen.  All we can hope for is a slow fade.  

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#7) On November 04, 2009 at 4:57 PM, RVAspeculator (98.34) wrote:

Wow Sinchiruna... just checked your silver miner portfolio..  A few more picks and points and that puppy is going to be one of the top players.  92% accuracy!

I have two other accounts myself.

1.  "Ultrasuck" where I shorted all the double and triple shorts and longs and just held those positions.

http://caps.fool.com/player/ultrasuck.aspx

2.  "Endisnothere" where I was trying to show the effect of when you create your account has on your CAPS performance.  What I did with this account was just make 100 some picks at what I thought were the lows in October and hold the picks for one year.   I made no changes to it for one year and then closed all of the winning picks.   Recently to top it off I just shorted 10 triple longs on October 15th.  By just doing those 2 things the account is #41 in CAPS.  This is why people shouldnt base EVERYTHING on a players score.  You can game the system by creating an account at a turning point and playing the ultras.

http://caps.fool.com/player/endisnothere.aspx

Anyway... it sounds like we are in agreement on gold.  I too had my eyes on the upper 900's as the potential range for a pullback.   I always hold a good amount of physical gold that I am not selling, maybe ever...  The last decent sized purchase I made was in the 800's.  This blog post more for the traders out there. 

We shall see...  Good luck!

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#8) On November 04, 2009 at 5:09 PM, silverminer (99.84) wrote:

Good luck to you, too!

Gold remains a coiled spring! :)

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#9) On November 04, 2009 at 6:03 PM, silverminer (99.84) wrote:

RVAspeculator

From the above-linked article:

While near-term forecasting is a reluctant hobby, I continue to invest with a purely long-term perspective, and encourage Fools to maintain unfettered focus upon the broader picture. Simply stated, I reiterate my $2,000 price target for gold. The Market Vectors Gold Miners ETF (NYSE: GDX) has nearly doubled over the past year, so piling into miners indiscriminately is not advised. After taking a beating for minor development setbacks, Agnico-Eagle Mines (NYSE: AEM) remains a favorite. For relative bargains, take a look at these mid-tier miners, or mine my silverminer CAPS portfolio for ideas.

 

P.S. I noted the same effect that you note above regarding timing and CAPS results in my article on the silverminer portfolio from July.

"By the fall of 2008, the massive disconnect I perceived between the deteriorating fundamentals of the U.S. dollar and the continued free-fall in commodity-related equities sparked a renewed commitment to communicate my bullish outlook for dollar-defensive investments. With the passion of all my conviction, I encouraged Fools to consider precious metal producers like Yamana Gold (NYSE: AUY) and Silver Wheaton (NYSE: SLW) at the moment they reversed into a dramatic recovery.

"A silverminer is born
Around the same time, on Nov. 19, I started the silverminer portfolio to focus narrowly on my investment strategy. As a long-term buy-and-hold investor, I find it ironic that timing played a significant role in this new portfolio's outperformance of the S&P 500. Started near the (presumed) bottom of the commodity correction, after four months the portfolio climbed to that same No. 1 spot among long-only players where my original portfolio had once sat. I try to dissuade investors from attempting to time the market, especially a market as volatile as precious metals. Sometimes, however, opportunity smacks you square in the face."

 

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#10) On November 04, 2009 at 10:59 PM, Tastylunch (99.53) wrote:

Nice post rva!

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#11) On November 05, 2009 at 1:21 AM, DarthMaul09 (98.61) wrote:

Excellent post and discussion.

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#12) On November 05, 2009 at 1:48 AM, uclayoda87 (30.59) wrote:

Even before reading the interesting blog on Fractals, I split my cash position into equal portions of cash and CEF.  If the market has a move down with the magnitude that was suggested in the Fractals blog, this event would have atom smashing type results.  The US dollar index would likely rise transiently as stock positions are sold off, but would investors then go into treasuries like last year or buy gold like India?

The Fractals blog may be similar to the Back to the Future sports book.  If you really knew what was going to happen to the S&P 500 in the next 4 months, how would that change your current investments?

 

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#13) On November 05, 2009 at 8:54 AM, RVAspeculator (98.34) wrote:

Thanks all….TMFSinchiruna/silverminer,Yes...  in November 2008 for the first time in my trading history I used margin and options at the same time to go all in on AUY, SLW, GDX and such...  Blogged about it here as well.  I started scaling out of those positions in March/April 2009 (to get into bullish equity positions) and was out altogether a few months ago.   I made quite a bit of cash there….I had 3 and 4 baggers on some of the juniors I picked up at that time. (MFN, CDE, HL) They were the highlight of my year this year, the lowlight being trying to short this market a couple times later...  :)   Most of those stocks are even 20% higher than when I sold them but you can’t argue with 300% and 400% gains.

Unfortunately I don't see the market ever giving us another opportunity like that one.  Looking back I wish now I would have moved even MORE money into the trading account at that time period but I guess you are never going to be 100% satisfied. 

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