Gambling, and Half the Year Over (Our Predictions were Horrible)

by JDH on June 29, 2013

Two items to report on this week, starting with gambling.

Unless you are on another planet, you will have noticed that gold stocks are getting hammered, and have for quite some time, which ain’t great for a guy whose portfolio includes gold stocks.  So what am I to do?

The correct answer was to sell everything two years ago, but that train has already left the station.  I could sell now, but with gold having traded below $1,200 this week (for the first time in three years), how much farther will it fall?  $1,000 per ounce is quite possible, but that’s only another $200 from where we are now.  If I sell now, will I know when to buy back in?  Probably not, so I’ll hold.

I lose as the stocks fall, but I’m still earning dividends (I got paid this week on G.TO – Goldcorp Inc. and FNV.TO – Franco-Nevada Corp. and last week I got paid on AEM.TO – Agnico-Eagle Mines Ltd.) and my covered write strategy, where I sell call options against my stocks and pocket the premium, has also helped mitigate my loses.

I’m holding, because at some point gold will go up, and it may increase quickly.  As I watched my stock screen on Friday afternoon I saw that some blue chips, like the afore-mentioned AEM.TO – Agnico-Eagle Mines Ltd. was up 10% on the day.  That’s a nice bounce off the bottom, so if you are investing for the long term, it’s wise to stay invested so as not to miss the big up days.

So what does this have to do with gambling?

Since I haven’t had much to do on stock transactions, I’ve placed some bets on options.

In May I bought and sold some puts on GLD and made a nice profit.

On June 24 the market appeared poised to pop upward, so I bought 10 of the SPX July 1600 calls for $12, and the next day sold them for $20, which was a nice $8,000 profit on my $12,000 investment.

Then on Thursday June 27 I went the other way, and bout 100 puts on the DIA (the July 146 puts) for 87 cents each, and sold them on Friday morning I sold them for $1.19, for a quick $3,000 profit.

Of course both of those transactions are pure gambling, because if the market moved quickly in the opposite direction I get wiped out very fast.  That’s why I bought and sold quickly.

Hopefully three wins in a row won’t make me believe I know what I am doing.  Luck is luck, so I will continue to only bet small, and cash in quick.

Now the second item on the agenda:

The End of Quarter Report

As you may recall, at the end of each year I invite you to submit your predictions for the coming year.  You can read them all on our 2013 Predictions page.

How did we do?

Horribly.

We all expected gold to be considerably higher, and the DOW to be lower.  We were wrong.

On average we predicted that gold would close on June 30 at $1,750 per ounce.  Actual value: about $1,223.70

Closest to that level was Uboat at $1,650, so Uboat wins.  I predicted $1,750, so I was just as wrong as everyone else.

For the DOW, our average prediction was 13,040.  Actual closing value: 14,909.60

The winner was MetaMeister with a prediction of 13,500, with Uboat in second place at 13,200.  My prediction was the worst, at 12,500.

What do I conclude from this debacle?

You can’t fight the Fed, so as long as the market believes that drunken money printing is a good thing, the DOW will remain strong.  As long as the market believes that the Fed will continue to spend like crazy, the U.S. Dollar is a “safe haven”, so there is no need to flee to the safe haven of gold.  That’s the way it is today, but the world can change quickly, so I will wait, and be patient.

Thanks for reading.  I trust my fellow Canadians will enjoy our day off on Monday for Canada Day, and my American friends will no doubt enjoy the Fourth of July.  Enjoy, and see you next week.