Saturday, January 10, 2015

Possible Longer Term Investment Opportunity

This is the Gold Bugs Index (HUI) going back to 2002.  (Chart courtesy of Jeff Saut, Chief Investment Strategist at Raymond James) As seen in the chart and relative to Stock Chart Technical Analysis, a favorable risk to reward situation exists by going long the gold and/or gold miners.

Here is an audio version of the picture.

The best way to do that would be by buying either the GDX (Senior Miners basket) or GDXJ (Junior Miners basket) or GLD (Physical Gold) ETF.

The reason that risk to reward is favorable is because back around 2002 - 2003, the gold miners had a tough time getting above the Resistance level illustrated by the blue line.  Once above that level, the miners (and gold itself) enjoyed a healthy rally that lasted until late 2008, when the wheels fell off and the miners sold off to the point of kissing the prior resistance/support line before resuming the rally.  This was a great risk to reward level to buy because as long as the index stayed above the blue line, all was well.  If it falls below that line, you could sell reasonably close to your buy price and wait for further developments.

Once again, in 2014-2015 we are in the same situation.  The index has fallen back to the prior resistance line - Now classified as a Support level because this level was bought the last time, so buying now and holding as long as the index stays above the blue line may offer the same type of reward as seen from late 2008 through 2012.  Again favorable risk to reward means that if you were to buy into gold (GLD) or the miners (GDX, GDXJ) you could hold and ignore all the daily noise only selling if the HUI index falls below the blue line level.  Or more literally, buy at this level = 186-ish, and sell if this level doesn't hold -  risk of losing around 10%. If the level does hold, then within a couple years, you could reasonably expect the index to return to the 500+ level, or a 5 times gain (500%).

There really isn't anything else to say.  Only pay attention to the blue line level.  You can watch it here  Personally, I'd punt if this index falls below 148-ish.  Also be aware that if it does fall this far there will be a massive downdraft as trader types rush to the exits so it will be wise to be fast on your feet to hit the sell button on whatever gold related vehicle you're using.  ie. Start getting antsy around 150.

The important thing is to have fun and never risk more than you're willing to lose.

Update:  Now you can protect your profits and retain more of them if the trend reverses.
For example, say you bought GDX (Senior Gold Miners Basket) to play this game.  Now you can put a mental stop out if the GDX falls below say 21 (today's level).  In other words, you can start watching the trendline support instead of the last resort HUI support level.
Just bring up a chart of what you bought (GDX, GDXJ, GLD) and draw a line below the bottom of the upwardly mobile candlesticks and sell if the price falls below That line.  You'll at least end up with some jingle in your jeans if it all goes South.  Based on today, that price level would be about 21 bucks.  If the trend stays in place, just keep extending the line and keep the mental note to sell if it falls below and re-evaluate afterwards, smiling as you pocket some money and become one of those fabled "Profit takers".

Chart from


  1. Gold is a commodity, nothing more, nothing less. Commodity prices are set strictly and only by where the supply and demand curve intersect (the market clearing price). Ecomonics 101 stuff. If you want to invest in commodities, and have fun doing it, good luck. You are better off plunking your chips down on red or black in Lake Tahoe. And they serve drinks while you're there, how could you not have fun? I want to know...

    Now, if you love betting on commodities, here's one for you, Kid, without all of the blue lines, index to returns and gobbledegook: oil has lost half its value over the last 6 months, and is now trading well below the cost of pumping it out of the ground for many of the high cost producers. Where's the bottom? Well, technically, $0 per barrel is the bottom, but someone will always pay more than that for a barrel of crude. The global economy was zooming along (kind of) just fine with oil prices around $100 per barrel, and things didn't come screeching to a halt when the price was $180 a barrel. $46 a barrel is a bargain currently.

    Go long on oil. Right now. ERX is a nice ETF that is a triple long play, and it has taken a beating these last 6 months. Buy low, sell high, or so the saying goes. ERX is low, very low as I speak. Buy ERX now. You heard it here first, Kid.

    1. Fredd, Lots of ways to skin the puddytat. Well, gold got to 25 last time around. It didn't stay there long, but still. The current thinking of market specialists, which I agree with is that crude is going lower and it's going to stay low for much longer than the last time the price collapsed.

      Other things I think I know - Saudi's pump it for 5 a barrel (so they say), fracking is losing money below 50 so those operations will shut down, reducing the supply and suggesting price going back up or holding at a certain level. You're right, the economy had no problem with $150 oil for whatever reason. I read recently where each drop of a penny in the price of gasoline put a billion + a year in the hands of consumers who will spend it. The Fed is out of bullets to stimulate the economy, is this an alternate "QE program"?

      Why is the price collapsing again now? I wonder if it might be because of the very strong negative effect it is having on Russia and other oil price dependent economies. Venezuela will get Mighty interesting! A geopolitical war tool?

      Good luck of course with your oil bet (said with best wishes in mind). It will fall further though. I triple guarantee it.

      As far as gold, many say there is no intrinsic value. I would heartily disagree. China is buying the heck out of it. They're also sending submarines to hydro thermal vents looking for gold, silver and copper. In short, people want it. People will always want it. And compared to paper money? You'll never convince me a piece of paper will ever be more valuable than a physical item that there is a finite supply of. Stock in a company? A company that might be cooking the books as we speak? Nope, I have no problem putting a little faith in the long term value of gold.

      PS, it is looking like Real Estate Investments (Funds) might do very well this year. 100% of my 401 is in FRESX and I expect it to stay there all year. I think the market itself is going ot be very volatile this year and am expecting more weakness early on - next couple - 3 months.

      Good luck man, you're a smart guy, you'll do well.

  2. Then again:
    “Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, 20 but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also.

    1. I'm with ya Ed, but one must pay the bills even after retirement. :)

    2. I was just being an over-educated donkey. :)

    3. Ed, Heh. Now there is something I never have to worry about being. :)

  3. I wanted to buy some gold five years ago but a cousin warned me; I don't even remember what he said, but I was convinced.
    And Ed thinks HE's a donkey? Man, you'd think I could give you the reasons, wouldn't you?
    I still personally think it's a good idea. But he DID convince me. Not that I had thousands to buy gold WITH but...!!

    1. Z, Not so sure about physical gold - as in chunks of it lying around in your safe deposit box but the ETF's give you a lot more flexibility to hold or sell. If you want something in case of the zombie apocalypse then silver is the best bet as it is easier to trade for whatever ya need - food - TP, etc. :) Btw - We have oodles of TP in the basement, that stuff is going to be worth its weight in Gold ! lol

  4. after two more years of obama's destruction and I'll bet I'd rather find a jar of canned tomatoes in the basement at the next downturn. Gold bricks chip teeth.

  5. Think of the tomatoes you can buy though ! PS, We here at Chez Kid, do have plenty of TP available for sale at a 'reasonable price' If and When.

  6. The New World Order is circling, like a dog does before lying down to sleep-doing a perimeter check-thinking all is ripe for the push of dominance. LEAVE OUT ALL OF YOUR VALUABLES - FROM ANY BANK LOCK BOX (Safe Deposit Box); the DemocRATS passed a law that if the economy crashes and the Banks need to be bailed out - well, all they have to do is clean out our accounts and lock boxes.
    Me, I've been kicking around the idea of sub-zero attire stacked from the floor to ceiling in my basement ( all in different sizes of course). That might be worth all the gold in China. And more easy to barter.

    1. TS/WS, I hear you and I translate it as how I've been regarding it... "There are too many nonsensical, unbalanced things going on to expect us to stay this course for much longer. Whether that is months, years, or even a couple decades, I don't know. But I can't imagine it's more than a couple decades.

      And yes, I did read that during the Great Depression, people went to the bank to find no money and nothing in their safe deposit boxes. Sub Zero attire? Sure, anything that people will want (read: Need) when it goes to hell will be worth it's weight in gold. Just make sure you have a militia to help you keep it until it's sold.

  7. Oh, and if some one does drop the big one, tree leaves will be radio active--------------------------------------------------------------------------------------------
    might be a good idea to have plenty of TP around.

    1. Paper money will work also, will only be good for bottom cleaning anyway.

  8. This is hardly my area of expertise, but common sense tells me the 'value' of gold. sliver, platinum, precious stones, the dollar or any other internationally recognized form of currency depends on what -- and how much of it -- the prevailing unit of currency will permit you to buy.

    Apparently, the 'Intrinsic Value' or Purchasing Power of any monetary unit is determined by the Federal Reserve and other extraordinarily powerful international banking interests. It seems these high-powered entities, -- who know no allegiance to the USA or any other nation, and are thus a law unto themselves -- can make or break just about any economy in the world by manipulating the value of particular forms of currency to suit the purposes of the International Power Elite.

    As for gold, the powers that be can always make ownership of it illegal. They've done it before.

    Centralized Power is THE deadliest enemy mankind has ever faced.

    It looks as though we must eventually revert to a primitive system of bartering -- even to the point of practicing The World's Oldest Profession as a matter of routine -- in order to supply our basic needs.

    Remember, in Oceana, the Proles were the only ones who still sang for joy at merely being alive.

    1. FT, None of this is meant to convey the idea that I'm a market expert, but I do believe a few things about the market with my 15 years of playing with and reading experts about it.

      - Markets don't move, they are moved.
      - Stocks are almost never valued based upon some logical value algorithm. If they were, stock trading programs would eat the market alive.

      Otherwise, to be clear I'm not suggesting buying physical gold. It's too illiquid. Just the stocks or ETFs that can be sold in a heartbeat.

      Otherwise, part two (Not duex:)), I mostly agree with what you're saying.

  9. Thanks for helping me make sense of the gold 'thingy' --

    1. Carol-CS, Anytime ! :) This idea is working out pretty well so far. I read where "as European central banks go to negative interest rates (Trying to jack their economies), many investors of all types will see the US Dollar and Gold as safe havens.

      That certainly played out in gold and the dollar the last couple days

  10. I hear China is buying up all the gold they can get their hands on.
    Do you watch on Friday - Gold Rush - Discovery Channel ?
    A 19 year old has 2 DC9's Caterpillars.
    His first season out on his own was a 1,000 ounce success.
    This seasons goal is 2,000 ounces.
    Ain't it funny that digging up the ground is still called a mining operation?
    A mine was always a image of a hole in the side of a mountain.
    What they are finding is gold buried in the ground that were once streams that have changed course; and the bends hold some gold big deposits--maybe 10 to 30 feet down. In Alaska of course.

    1. TS/WS, I've seen that. Yes, China is very interested in Gold. Worldwide, they say they've gone from digging up nuggets to sifting it out of the ground. A small operation that can find that much can do very well. About 2.6 mil for 2000 oz.