Gold Versus Paper December 28 2011 - Interim Update

8/3/2019 Gold Versus Paper December 28 2011 - Interim Update

http://slidepdf.com/reader/full/gold-versus-paper-december-28-2011-interim-update 1/10

Gold Versus PaperTurning paper into Gold

December 28, 2011

INTERIM UPDATE

Let me cut to the chase and give the executive summary in two words: we’re there. It isnow time to get bullish again on the PM sector. Others are afraid; we want to be greedyhere. I believe there is a 75% chance this is “THE” bottom in the PM sector, but even if itis only “a” bottom, it should make a very profitable trade.

The only way I can reconcile my general bearish outlook for global equities with my bullish outlook on the PM sector is to look at the late 2000-2002 period and the 1973-1974 period. During these periods, Gold and Gold stocks rose while the general marketswent down.

It is true that when markets decline precipitously, Gold stocks decline with them.However, if we get a steady and/or choppy decline in global markets (due to endlessinterventions and money printing), then Gold stocks can rise while markets are flat todeclining.

I think there is a very good chance that the bottom will be in tomorrow at some pointduring the day. Notice in the bullish percent chart on the GDX (i.e. the $BPGDM) wherewe are relative to the fall of 2008 bottom (4 year busy daily chart plotting the $BPGDMas a black linear plot and the GDX as a green area plot behind it thru today’s close):





Also, I have been waiting for the weekly slow stochastic on the GDX ETF to get to theusual level that has marked previous bottoms. We’re now there (weekly 12 year log scalechart of the GDX thru today’s close):





We also have my anticipated adequate correction in the GDX to S&P 500 ratio (GDX:$SPX) chart that longer-term subscribers may remember from letters this fall. Here’s theweekly log scale chart of GDX:$SPX over the past 12 years thru today’s close:





The Dow to Gold ratio is also at an extreme that will end the upward countertrend move(12 year daily $INDU:$GOLD chart thru today’s close):





When the Dow to Gold ratio is falling (i.e. Gold to Dow ratio rising), Gold stocks areusually rising as well (except during market crashes/panics a la 2008).

And let us not forget the longer-term sentiment backdrop this is occurring under. TheRydex Precious Metal Mutual Fund assets under management as a sentiment gauge is one

of my favorites because it tracks actual money flows, not opinions. When assets are up,money is flowing into the fund and people are bullish on PM stocks. When money isdeclining/low, people are bearish. The herd is always wrong at extremes, so when thechart below shows a low reading, we want to get bullish. Here’s data over the past 11years (back to almost the beginning of the secular Gold stock bull market) thru today’sclose:

It doesn’t get much better than this from a contrarian point of view. The herd has givenup. We are near fall of 2008 levels in this sentiment gauge and have been for months(unlike the quick spike down in late 2008).

It is also now time to buy Gold and silver. I think silver will outperform Gold coming outof the bottom initially, but I don’t know for how long. I am sticking with Gold stocks for now and will be using options on GDX and the NUGT ETF (triple leveraged/triple

bullish ETF that tracks the GDX ETF). If you don’t want leverage, there’s GDX, GDXJ,GLDX and other vehicles depending on your location. The TGLDX mutual fund run byJohn Hathaway is a great choice as well (I am a trader so I don’t do mutual funds).

Also, be aware that there is now a triple bullish ETF on Gold and silver (UGLD andUSLV), as well as multiple paper metal vehicles for those who would prefer tradingmetal over metal stocks. Don’t forget to add to you physical metal stash at these fire sale

prices...



A rough and panicky drop tomorrow (5% would be great) that stabilizes, turns higher andleaves a bullish bottoming daily candlestick with a big tail below (and potentially closesflat or higher for the day) would be the ideal scenario and is what I amanticipating/hoping for. This applies to the whole PM sector (metals and metal stocks). If I think the bottom is upon us, I will email you immediately.

I believe there is a 95% chance that a major bottom will happen within the next 5 tradingdays and I think there is a 60-70% chance it will occur tomorrow.

I plan to take profits on the EEV ETF trade (i.e. short emerging markets trade) in themorning. I will then be going 100% [leveraged] long in my trading account in the PMsector once I think the bottom is upon us. My 47 target on the GDX is quite feasible, buta turn could happen at any time now and there is obviously no guarantee we reach 47

before going higher.

Documents

Gold Versus Paper December 28 2011 - Interim Update