Gold: The Win-Win Asset
Jun 12, 2012
- "Investors are getting tired," he said. "There's only so much plaster you can put on a crumbling wall." - Jack Ablin, chief investment officer at Harris Private Bank in Chicago on CNBC news, June 11, 2012
- Italy is the 3rd largest economy in Europe, and it seems to be next in line to ask for bailout money. Italy is also the largest issuer of government debt in Europe.
- Institutional analysts feel the European Central Bank needs to come up with a much bigger solution, but it seems unlikely to happen before the Greek election takes place on June 17. A municipal workers’ strike is planned for June 16, and that could delay the entire election. Europe seems to be almost out of control. Gold is always the preferred asset to own when uncertainty becomes the dominant theme.
- Please click here now. You are viewing the daily chart for oil, and you can see that most technical indicators and oscillators are dramatically oversold.
- Unfortunately, that doesn’t necessarily make oil as much of a bargain as it appears to be. When technical indicators go into an oversold condition, they can turn up sharply. When that happens, price tends to follow.
- At other times, the indicators can “flatline”. That’s what is happening with oil. While oil is technically oversold, at least on this daily chart, price continues to disintegrate.
- Please click here now. This is the monthly chart for oil, and it’s “infested” with very clear sell signals on the technical indicators, oscillators, and the uptrend line.
- The International Energy Agency releases its oil market report tomorrow, and the rumour is they will forecast a continuing decline in global demand for oil.
- Most investors approach assets like energy with an idea that they are either a buy or a sell at a particular point in time. I would suggest that more real wealth is built if you focus on accumulating oil when its future looks bleakest, technically and fundamentally, as it does now.
- After declining from over $110 a barrel to nearly $80, oil represents good value, but that doesn’t mean you should invest all your risk capital into it.
- Assume that oil can go to $1 a barrel. The amount you invest at $80 should be an amount you can hold without too much pain if price fell to $1.
- If oil “gets away” and never goes much lower than $80, the professional investor will make a good profit on a small investment.
- If oil declines to lower prices, the professional investor buys more. In the real world, price rarely “gets away” from investors. In most cases, the price of their assets eventually declines far below their purchase price.
- Use fundamental and technical analysis to decide whether to invest in an asset, but don’t use it to decide how much risk capital to invest, or you may experience tremendous pain when price declines deep into your “personal surprise zone”.
- Gold is a win-win situation for investors! If oil falls more, the Dow will likely fall more. If the Dow falls hard enough, the Fed will likely announce QE3, which should push gold higher. If QE3 and other global credit easing programs fail to stop the acceleration of the crisis, a panic into gold could follow. Gold and related items are the only win-win assets.
- Unfortunately, the market doesn’t care about what you or I need or want from it, in terms of performance. The market doesn’t care if we need to retire at a certain age or need a new house. Amateur investors tend to invest huge sums of money into assets, based on a personal belief that enormous reward is coming to them in a relatively pain-free manner.
- Nobody knows if oil is going to decline to $60, $40, or $20, and nobody knows if gold is going to decline to $1400, $1000, or $800. Please click here now. That’s the monthly chart for gold. I call it the “carrier strike group” chart, because it highlights the largest areas of technical support.
- If you commit any risk capital to gold, you are committing capital to the world’s lowest-risk asset. It should be committed mostly when price declines into one of these massive support areas. With gold, you must be able to deal with drawdowns of any size. If you can’t deal with any and all drawdowns, then you have invested too heavily.
- Few investors in the gold community thought that GDX would fall towards $39 and GDXJ would fall towards $17, but they did. Look to the upside for reasons to own gold stocks. Look down into your personal surprise zone to see where your biggest buys will likely be executed.
- I continue to accumulate natural gas, “all the way to zero”. Please click here now. Price is set to take out the lows, and perhaps begin a brand new down leg. At some unknown point in time and price, the declining price will force enough companies to reduce so much production that a final bottom occurs. I have no idea when that time or price will occur, and I continue to accumulate this great asset. When it does finally bottom, the percentage gains that come “out of the hole” can be spectacular.
- I bought silver in a similar fashion in the 1970s, and into the lows of this bull market. I had no idea where the bottom would be, but the closer the price got to zero, the more I wanted to own it.
- Please click here now. That’s the long term seasonal chart for silver, courtesy of Dimitri Speck. You can see that late June (just 2 weeks away) is the time when silver typically makes its seasonal bottom. If you are new to silver, you should not try to carry the same amount of silver that somebody bought into the bear market lows, regardless of what the possible upside reward appears to be. The drawdowns can turn you into an emotional wreck.
- Please click here now. GDX-nyse is based on the HUI gold bugs index. Just as the support zones on the monthly gold chart are the most important places to buy gold, so are the monthly support zones on the HUI chart the most important prices for gold stock investors to buy gold stock!
- Note the annotation on the chart. I put that there a few weeks ago as price was declining. The decline stopped in the area of key HSR (horizontal support & resistance) at 401.69. These key support areas cannot be ignored by gold stock accumulators. Professional gold stock investors don’t care about the shrill statements made by amateurs as price declines. They buy in increasing size at these key support lines, and today’s question is, should you do the same?
Jun 12, 2012
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