A 10 Year Look at Gold

by JDH on May 27, 2017

It’s a good idea to occasionally take a step back and look at the big picture.

Here’s the big picture for gold:

What does it tell us?  Either a lot, or not much, depending on your perspective.

The blue lines show the uptrends from 2008, and 2009, remain intact.  The red lines show that since the peaks in 2011 and 2012 gold is obviously in a down trend.  So which lines do you believe?

Both.

Clearly over a long time frame gold is in an up trend, and over a shorter time period the trend is down.  The real question is what will happen in the future?  My answer?

Both.

Some up, some down.  However, an object cannot go both up and down forever.  One of the trends must take over.  A close over $1,400 would break the down trend line, and the odds-on bet would be for higher gold prices.  Similarly, a close below $1,100 could portend a test of the $900 level.

So I’m playing gold very cautiously.  I expect it to continue to trade in a relatively narrow range, so I buy when it’s at the low end, and sell when it’s near the higher end.  I don’t let profits run.  I get in and get out.

For example:

Two days for a 3.5% return.  Spectacular?  No.  Decent; sure.  Risk: none now, since I’m out.

Last year I had fantastic returns in the first half of the year on gold, and gave most of it back in the second half of the year.  Not this year.  The strategy is simple:

  • If NUGT has had a few down days and is trading near the bottom of it’s weekly or monthly range, buy 25% of a position (so if I want 1,000 shares, buy 250).
  • If it goes up by 3.5% in two days, sell (see above).
  • If it drops, buy another 25%.
  • If it drops, but another 25% of a position, or whatever seems appropriate.
  • Eventually it bounces back; take the profit and sell.

What I’m not doing is deploying 100% on day 1.  This week I had a small position and made money.  In hindsight I could have deployed 100% of my cash, and I would have done fine, but that’s not the game we are playing.

Contain risk, play for base hits, not grand slam home runs.  Let’s see how it plays out.

Thanks for reading.  See you next week.