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Ignore Gold Experts

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June 25, 2013
Ron DeLegge, Editor

The Great Gold Crash of 2013 is one of this year's biggest investment themes the gold experts never saw coming. And most of them, after being utterly blindsided, are still in complete denial.

Look no further than Mr. Loudmouth himself, Peter Schiff. Here's what he said on June 11 in a interview with Futures Now:

"Gold can certainly make a move up to $1700 or $1800. When the world figures out the position we're in, it's gold that's going to the moon."

Lest we remind the dear reader, this is the same Mr. Schiff who on Feb. 13 said in a MarketWatch report he was sticking to his $5,000 per oz. gold forecast. And before that, on Dec. 6, 2012, Schiff told Yahoo! Daily Ticker that "gold was still in an uptrend." LOL!

To be fair, Schiff is not the only gold expert who's been long and wrong about gold. Mr. Schiff is joined by a venerable list of other "smart money"* guys, that remains bullish on various gold linked assets. This includes David Einhorn, Dennis Gartman, James Turk, John Paulson, James Grant, and Marc Faber.

For the rest of the world, (not the one with its ostrich head buried in the sand, the other one) it's important for you to understand a few gold facts:

1) Global gold investment demand is down 51% over the past year. (Source: World Gold Council)

2) Gold has already met the generally accepted definition of bear market, with it 20% decline from peak to trough.

3) Gold and other precious metals are in the midst of a severe technical downtrend. 

4) Gold is underperforming every major asset class. (See relative performance table below)

5) Gold manipulation or not, being short or completely out of gold, has been the right place to be. 




In ETF land, the SPDR Gold Shares (NYSEARCA:GLD) has declined around 23% in value and is down over 32% since August 2011. And gold mining stocks (NYSEARCA:GDX) are down a breathtaking 52% over the past two years. The sign of a true bottom, as with all markets, are panic stricken sellers, not brainwashed buyers who are delighted to buy more. 

Learning from Their Mistakes
In the meantime, we can't help but wonder the following question: Why do experts like Schiff & Company continue to be so wrong about the direction of gold prices? As we see it, there's a few reasons behind their epic failure.

First, gold experts have heavily vested interest in being bullish on gold (NYSEARCA:IAU) 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. Just as Harry Houdini fooled his audience with eye tricks, gold experts extrapolate impressive data and deflect attention from gold's real price action with scare tactics and dogmatic arguments about why gold will soar. 

Second, gold experts have zero trading discipline. This is mainly because they don't use protective stop losses to guard against catastrophic declines. John Paulson alone is sitting on roughly $1.5 billion in losses from busted gold bets. For the experts that tell you to buy physical bullion, you can't protect a physical gold position with a stop loss and besides that, hedging against lower prices isn't how goldbugs are bred to think. Instead, goldbugs continue to be married to the gold trade, until death do them part or they get slaughtered or whichever comes first.

Finally, gold experts suffer from a behavioral disorder that psychologists refer to as "affinity bias" disorder (ABD). Instead of carefully examining the soundness of an investment, ABD causes the individual to buy investments they are enamored by, but that may be disadvantageous. ABD can trick a person into buying things that reflect their social or personal biases, rather than a clear headed and subjective analysis of the real opportunity.

Profiting from the Gold Shock
Contrary to what the very wrong gold experts have said all along, the ETF Profit Strategy Newsletter, since early 2013, alerted its subscribers that the real money in gold, silver, and miners would be on the short side.

Besides troublesome charts, we observed incredible market distortions between the relative performance of gold versus other major asset classes. These dislocations were (and are) especially pronounced in gold mining stocks (NYSEARCA:GDXJ). 

In our #Timestamped 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 mid-February, DUST has gained 199%. And in that same report, we told our subscribers to buy JUN 40 GDX put options at $190. In early June, we booked a +525% gain in those GDX puts at $1,200 per contract. (Our latest time stamped metals trade is already up over 100% and is still an open position.) 

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 ETF Profit Strategy Newsletter and Technical Forecast cuts through the daily reams of misinformation by telling subscribers what to buy, what to sell, and when to do it.

In summary, the moral of the story is that even convincing arguments about why gold prices should rise can be badly wrong. Let real life price action be your guide - not dogmatic investment opinions.  

P.S. Read my January 8, 2013 article titled: "8 Reasons Gold May Disappoint in 2013."

P.P.S. Watch our latest video: How Gold Experts are Misleading the Public

*A decoy phrase for "dumb money"

Follow us on Twitter @ ETFguide

CommentsAdd Comment

Grupo said on September 30, 2013
  I agree. Foreign investment doallrs are not going to be heading down to Venezuela after this. US needs to keep an eye on him and make sure Chavez isn't planning something crazy.
 
 
David said on July 10, 2013
  Like your comment Karl. Increasingly, Main Street will see such experts for what they are. Denis the menace...another example
 
 
KarlU said on July 03, 2013
  Schiff is just another Wall Street guy and just like all the others. He tries to pass himself off as an "outsider" but he's just a self-serving wolf hiding in sheepskin. Of course it's impossible for Schiff to say "sell gold" because it conflicts with his gold selling business. Buyer beware.
 
 
David in Tokyo said on June 28, 2013
  Ron

Some time in April/May, I questioned the 2nd GDX put recommedation - was it a good recommedation? when Gold spiked momentarily. The spectacular returns speak for themselves! Great call!!! Keem 'em coming.

Walter

Let me preface this with the fact I'm not a professional investor. But let me share my experience for what it's worth

I was in your situation exactly though with GDX. bought it, held it and it went down. I sold out the lot and took a big hit. thankfully, I also saved quite a lot of the remaining funds as GDX went down further.

My strategy is to a) use the remaining funds for other trades which have gone well and therefore recoup some of the initial loss b) keep a close watch on GDX for eventually when it heads north (1, 2 years or whenever, I can wait) and then put those original remaining funds back to work in NUGT. I'll be sure to make more than I lost over time.





 
 
KennyKindr said on June 27, 2013
  Maybe all that fiat cash (for now) is not such a bad place to be after all. I believe Sir Warren Buffett is sitting on a rather large pile of it too.
 
 
GABRENTO said on June 26, 2013
  Ron,
Hats off to you and your team for keeping us on the correct side of the GLD, SLV, and GDX trade. You've given me 5 years worth of subscriptions in profits.

grant8,
I love reading your regular posts. Can't deny that I've been suprised by the velocity of the move down by metals, but I'm happy not to be long.
 
 
grant8 said on June 26, 2013
  Gold another -3.5% today. Just stunning.
 
 
HarelyK said on June 25, 2013
  Great article.
 
 
Ron the Editor said on June 25, 2013
  Hi Walter,

If I was forced to hold a long GLD or gold position and it was my money, I would do a combination of things:

1) Sell out of the money covered calls on my GLD position (do monthly, as we do in our ETF Portfolio service & at times in our Weekly Picks)
2) Buy inexpensive insurance protection on my GLD position with out of the money put options.
3) Use some of the premium income from my GLD covered calls to pay for the put options insurance protection.

I'm glad you're with us and I hope this helps!
 
 
walter said on June 25, 2013
  Ron, I'm a subscriber, though I wish I had subscribed a year ago! I've already made great gains thanks to your emails. I currently have about 15% of my portfolio in GLD/SLV. The positions are down about 20% from where I bought, yes I screwed up and was listening to "dumb money". What would you do, dump what you have left or just hold onto it? Holding the stock I have isn't stopping me from eating or making the house payment but is it all down hill from here and I need to bail while the getting is still somewhat reasonable?

I keep checking my inbox everyday for the next ETF Guide email, keep up the good work!
 
 
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