June 28, 2013

Great Gold Crash Exposes Toxic Advice

Current trading patterns for the precious metal, though, do point to certain trading possibilities that could prove profitable

The Great Gold Crash of 2013 has arrived. And contrary to what you’ve read or been told, the worst is not yet over.

During the course of its 12-year bull market, gold prices have fallen more than 10% in value seven times and by more than 20% on three occasions. Between March and October 2008, gold slid by 30%. Yet, today, gold’s current correction is much larger. Since its peak in mid-August 2011, gold has declined 37%. 

Meanwhile, gold’s permabulls continue to get the direction of bullion prices completely wrong.

Here’s just a tiny sample of the toxic investment advice that’s been dished out over the past six months or so:

  • Dennis Gartman: Gold Is Good but Gold Stocks Are Even Better - Money News (Nov.28, 2012)
  • Gold’s Uptrend is Still Intact: Peter Schiff – Yahoo! Daily Ticker (Dec.6, 2012)
  • James Turk ups his $8,000 an ounce peak gold price forecast to $11,000 – Arabian Money (Jan. 6, 2013)
  • Gold at $5,000 and beyond: Peter Schiff sticks to his call – MarketWatch (Feb.13, 2013)
  • Gold Bets: John Paulson Loses $1 Billion – Hedge Co. (May 6, 2013)
  • Two Gold Bulls Explain the Bottom Is Near, Heading to $7,000 - CNBC.com (June 27, 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 and silver 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.

Have gold’s permabulls lost their credibility?

Not enough so to prevent awe-struck media establishments from re-inviting the same long and wrong guests back to the studio. Apparently, the deep thinking thesis behind $10,000-per-ounce gold takes more than one sitting.

Profiting From a Gold Shock

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

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

“Despite a modestly rising stock market, the Market Vectors Gold Miners (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 a vicious 40% and DUST has surged a ridiculous 251%.

In that same report, we told readers to buy JUN 40 GDX put options at $190. In early June, we exited the GDX put contracts at $1,200 per contract for a 525% gain. Our latest positions in metals related ETFs are already up more than 50%.

Unlike gold experts, we let real life price action – not hunches or biases - be our leading indicator. 

Summary

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, if you’re not into charts.)

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.

Could $1,000 per oz. gold be the next stop?

Remember this: Gold’s melting point is 1,064°C.

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For direct insights on the role of ETFs in client portfolios from multiple experts—including Rick Ferri, Ron Delegge, Skip Schweiss and more—we invite you to register for AdvisorOne’s premiere advisorcentric Virtual ETF Summit, which starts July 23 (and get multiple hours of CFP Board CE).

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