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A Gold Forecast that Will Shock the World

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May 17, 2013
Ron DeLegge, Editor

How ugly has the gold market gotten? So ugly that even goldbugs are completely dazed and confused. 

Here’s just a brief summary of their hilarious views over the past few months:

Gold’s Uptrend is Still Intact: Peter Schiff – Yahoo! Daily Ticker (Dec.6, 2012)
Gold at $5,000 and beyond: Peter Schiff sticks to his call – MarketWatch (Feb.13, 2013)
James Turk ups his $8,000 an ounce peak gold price forecast to $11,000 – Arabian Money (Jan. 6, 2013)
Gold Bets: John Paulson Loses $1 Billion – Hedge Co. (May 6, 2013)

Should it really surprise us the gold experts have been so badly wrong about the direction of bullion prices?

The fact is they ignore every important technical and fundamental data point that contradicts their bullish views.

Plus they have a heavily vested interest in being bullish on gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) because it's good for their businesses. Schiff and Turk both have large marketing enterprises that sell physical bullion to the public. Paulson rakes in hefty fees for making quarterly appearances about why he’s still bullish on gold.

Meanwhile, as their customers continue losing money, gold experts are laughing all the way to the bank. (And the customers that suffer from Stockholm Syndrome don't just enjoy losing money, but they like defending their captors.)  

The uncomfortable truth is that gold prices have been in a bear market since 2011 and gold investment demand is down 51% over the past year. (see table)

Anyone that’s bought and held physical gold and silver bullion over the past two years probably knows that much. But it gets worse.


Gold Markups Add to Pain
The typical markup that bullion dealers charge customers is between 5% to 8% over spot prices and others (we won’t mention any names) skim even higher percentages!

If there’s anything that could ever make a ghastly pawn dealer look good, it might be grotesque the food chain markup in the physical bullion marketplace.

Here’s how it works:

The U.S. Mint marks up the price of coins it produces (usually around 3%) to cover the value of the metal along with minting, shipping, and other costs. Authorized purchasers who buy from the Mint add their own markup. And if they sell to dealers who sell to the public, another markup gets added. Guess who’s at the bottom of the food chain? That’s right, physical bullion buyers.

And if bullion buyers are unfortunate enough to purchase fractional coins, they get hammered a little more. That’s because the markups for fractional coins, like a half-ounce or quarter-ounce, routinely reach above 10% to 20% of spot prices.

Here's what it means:

In a rising gold and silver market (NYSEARCA:GLTR), rising prices can cover the steep transaction costs for buying and selling physical bullion. Conversely, in a sharply declining metals market – as we have right now – it’s impossible for lower prices to cover the ridiculously high transaction costs of taking physical delivery. And if we include the cost of storage and insurance, the pain worsens and that’s why owning physical metals are turning out to be a bad investment. Will it match the cold spell from 1980 to 2007?

Profiting from a Gold Shock
Contrary to what the very wrong gold experts have said all along, the ETF Profit Strategy Newsletter alerted its subscribers that the real money in gold and silver would be on the short side. 

In our Weekly ETF Pick from Feb.14 we wrote:

“Despite a modestly 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 (GLD) by a very significant margin. At present, GDX trades around $41.50 and is well below both its 50 and 200 day moving average. Buy the Direxion Daily Gold Miners Bear 3x Shares (DUST) at these levels. 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.”

Since then, GDX has slid 33% and our Feb.14 DUST trade resulted in a +29% gain. But that’s just the tip of the iceberg.

In that same report, we told our subscribers to buy JUN 40 GDX put options at $190. Today, those same GDX puts are up +525% to $1,200 per contract.

Our GDX trade was a grand slam, but forget about what already happened. What’s coming next in the gold market will shock the world.

The cute idea that frenzied buying of physical bullion by Chinese and Indian consumers is a bullish event is laughable. Consumer sentiment is always a contrarian indicator, as the gold experts, once again failed to mention. The sign of any market bottom – gold included – isn’t panic buying, but panic selling. (See Ezekiel 7:19)

Our examination of the precious metals market points a very high profit opportunity for investors and traders who are 1) on the right side of the market, and 2) who are correctly positioned in the right investments. The gold shock could turn out to be one of the biggest investment themes the experts never saw coming. 

The ETF Profit Strategy Newsletter and Technical Forecast cut through the daily reams of misinformation by telling subscribers what to buy, what to sell, and when to do it.  Our no bull approach is known worldwide.

P.S. If you hated this article, then you'll love the one I wrote in January titled: "8 Reasons Gold May Disappoint in 2013."

Follow us on Twitter @ ETFguide

CommentsAdd Comment

Ron the Editor said on May 27, 2013
  Hi David,

Too many traders and experts are still focused on the wrong ball. Contrary to them, we always focus on price action first and foremost. The Fed, the economy, market sentiment are all secondary and tertiary indicators. That means the latter should not be used as the primary driver of whether to buy or sell an ETF or an asset class. Rather, we use prices in conjunction with these secondary data points to arrive at what we believe to be high profit opportunities.

When market prices go against us, we bail out to minimize losses. When market prices go with us, we ride the wave while aiming to protect profits by raising stops.

Take care friend!
 
 
David said on May 24, 2013
  Ron

One additional comment. I presume that among your technical analysis is that the Fed mentioning tapering QE3 or starting the process, will be good for the USD and therefore bad for Gold. Hence your short recommendation.

Is this correct?

David
 
 
David said on May 23, 2013
  Ron

I hear ya!! Thanks....always appreciate your comments



Cheers
David
 
 
Ron the Editor said on May 23, 2013
  Hi David,

The 525% gain in GDX Jun 40 puts took 3-4 months to develop. It didn't happen in a week. Patience, no matter on which side of the market you are, is a pre-requisite. We always give new ETF positions a little leeway or time to develop. And if they don't cooperate after we've given them adequate leeway, then we cut the cord and bail.

Take care, friend.
 
 
David said on May 22, 2013
  Hi Ron

Thanks for replying. The June 40 put was spectacular. (I was referring to the most recent put buy recommendation for GDX. ) In any case 'amen' let the technicals do the talking.

David
 
 
Ron the Editor said on May 22, 2013
  Hi David,

Shorting GDX was a bad call?!? We bagged a 525% gain on the June 40 puts. The Feb 14 report is time stamped, for any doubters. Not sure what you're missing here. (Also, our DUST pick, which coincided with the GDX puts was a big winner too)

Over the past week GDX has gained around 4%, so there's your corrective bounce. As I've said before, the stock prices for miners won't stabilize until gold/silver prices stabilize, and thus far we have little evidence the selling is over. As always, our Technical Forecast and Weekly Picks will keep you on top of what the key levels are - so you know on which side of the trade you should be. We let the technicals - not our emotions or personal biases/feelings tell us whether to be short, long, or in cash.

For newer readers, FYI...The SPDR Gold Shares (GLD), which represents 1/10 the ounce price of gold bullion is at $132.50 as of today. That's roughly in line with Gold Jun 13 (GCM13.CMX) of $1,369.

Best of success to you and the rest!

P.S. Our June 2013 Profit Strategy Newsletter gets released tomorrow. It's jam packed with good stuff. Don't miss it!
 
 
David said on May 22, 2013
  Gold now at 1,400+ and counting.

Is this a corrective bounce or was shorting GDX a bad call?
 
 
Ron the Editor said on May 19, 2013
  WARNING: Jay is one cool cat... gray beard and all.

FYI to all, Jay recently retired and although $1,700 wasn't the ideal entry point in gold, it only represents a small percentage of his overall asset mix. How many retirees (unlike Jay) overleveraged themselves on gold and now have large positions they wish they didn't own? This really stings too - because gold is an asset that generates no dividends or income. (not unless you're selling calls on GLD)

If the stock market is the jungle, what can be said of the gold market?

Unfortunately for the latter, there are no circuit breakers to curb the panic selling. That's the bad news. The good news is this: The mother of all buying opportunities in gold is probably ahead, BUT ONLY...if we see true capitulation. I'd like to see some major goldbugs throw in the towel. That would be a good sign.

On another note, thanks for the kind remarks about our work Jay. Muchas gracias!
 
 
Jay said on May 19, 2013
  I'm certainly not too proud to admit I bought a gold fund back at around 1700. Very small % of portfolio. It's an even smaller % now :). Lesson learned: never buy whatever is being peddled by every other ad and article in the financial media! Seems silly to capitulate now, though, given the tiny stake and my time horizon for that particular account. Gold will always be gold with it's high and low tides.

I see new names on the comment board. I hope you are all subscribers. I am the 'ol grey beard around here and have seen ETFG at many junctures over the years. But never finer than now: crisp and specific weekly trade ideas, timely technical analysis and a comprehensive monthly newsletter. Nice work Ron and Chad...

A successful week to all, -jay
 
 
AARONBELS said on May 19, 2013
  Hi Paulos, I think all govt's will do what India is doing. They want to force people into their fiat currencies and forcing people to sell gold or surprsessing with buying curbs is how they manipulate the game. But I'm still not gonna step in front of a freight train. Still waiting for a bigger drop in gold to come like Yammel.
 
 
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