Or not.

Here is a mathematical summary (the average) of our Forum members’ predictions for 2012:

The Price of Gold Will Be:

The DOW will close at:

The consensus appears to be that gold will continue to increase as the year progresses, and the Dow will continue to erode into the middle of the year, and then remain flat for the balance of the year.

You can see each person’s individual predictions by scrolling down on the right hand side of this page, or by going to our 2012 Predictions Page.

Comments? Agree or disagree? Want to understand why someone is predicting what they are predicting? Post your questions or comments on the 2012 Predictions Board on the Buy High Sell Higher Forum.

You can see my predictions on the JDH 2012 Predictions page, but here’s the summary: I’m more optimistic on the price of gold than you are, and I’m more pessimistic on the Dow.

You expect that gold will increase over the year from the $1,600 level to about $1,900 by the end of the year.  I think we will see $1,900 by the middle of the year, and $2,100 by the end of the year.  In fact, a big part of my brain thinks we will see $2,500 at some point this year, so perhaps I should have asked each of you for a maximum prediction during the year.  We could easily see $2,500 in November, and then $1,900 in December.  Picking exact numbers on exact dates is a fool’s game (that each of us are all to willing to play, obviously).

As for the Dow, you think it will close the year at 11,725; I’m thinking more like 9,500.  Ouch.

Of course the truth will depend on government actions.  If the government continues to print money, and if the world doesn’t care, then the Dow could be 14,000 very soon. (Interestingly, Uboat thinks it will be 14,000 on March 31, and ChrisC thinks it will be 14,275 by the end of the year.  Those were the two maximum predictions from the group).  Uboat and ChrisC could very easily both be correct.  If the Eurozone situation is fixed, 14,000 in three months is quite possible, and is even more achievable by the end of the year.

Of course I have no sense of optimism, and I expect that government efforts will ultimately fail.  I may be correct, but my timing may be completely wrong.  Perhaps the balloon will remain inflated for many more years to come, in which case I will look foolish.  Time will tell.

If the market does well, it’s possible that gold will do well.  Or not.  In a liquidity crises everything gets sold, so again, time will tell.

For the record, my prediction of gold at $2,100 at the end of the year is exceeded only by Beginner’s prediction of gold at $2,300 by year end. ChrisC is at the other end of the spectrum, predicting gold at $1,550 at the end of the year, and Croaker is not far behind, predicting gold at $1,590 on December 31, 2012.  Obviously one of us will be spectacularly wrong.

(It will probably be me, so sell all of your gold, now!).

Comments? Agree or disagree? Want to understand why someone is predicting what they are predicting? Post your questions or comments on the 2012 Predictions Board on the Buy High Sell Higher Forum.

Thanks for reading, and predicting; see you next week, with some ideas on how to invest in 2012 (all suggestions welcome on that point as well).

The average prediction for the closing level of the Dow on December 21, 2011 was 10,892. Apparently we were somewhat too pessimistic, since the Dow actually closed at 12,217.56, or 12% higher than we expected. Congratulations go to ChrisC, who predicted a closing level of the Dow at 12,650. Well done. A year in advance, that’s about as close to “bang on” as you can get.

How did I do? Not well. I predicted that the Dow would lose 1,000 points each quarter, so my prediction of 12,000 on March 31, 2011 was within 300 points of perfection. My 10,000 prediction on September 30, 2011 was only off by 900 points from the actual level of 10,913. However my December 31, 2011 prediction of 9,000 was not even close to the actual 12,217 level.

Why was I so far off? Why were we all too pessimistic?

You could make the argument that we weren’t that far off. On October 3, 2011 the Dow closed at 10,655, the low point for the year, which was 854 points lower than the 11,509 level the Dow reached on September 16, 2011, a mere two weeks earlier. Had the Dow fallen a further 854 points in the remaining three months of the year, I would have been very close. If swings of 854 points in 11 trading days were not an unusual occurrence in 2011, a few more weeks either way makes a big difference.

I’m not trying to justify my lousy prediction. I was wrong. I admit it.

But I can’t help but wonder if there wasn’t some manipulation going on here.

The Dow peaked at 12,810 on April 29, 2011. On October 3, 2011 the Dow closed at 10,655, the low point for the year, a drop from peak to trough of 2,155 points, or almost 17%. That’s a big swing. That’s volatility.

And yet, on from December 31, 2010 to December 31, 2011 the Dow traveled from 11,577 to 12,217, a gain of 640 points, or 5.5%

When was the Dow last at 11,577? November 29, 2011.

That means that the entire gain for the year on the Dow occurred in the month of December. That’s not exactly a nice steady bull market rise. And let’s not forget that that the broader averages, like the S&P 500, ended the year flat, and the Nasdaq was actually down 1.8% on the year. I guess that means it’s easier to “paint the tape” in a 30 stock universe, than in a 500 stock index. Or perhaps in a “flight to safety” the lemmings all go for the big stocks.

Gold

The other area where I tested your predictive powers was the closing price of gold. Gold closed the year at $1,564.80; your average prediction was $1,621, so we were, on average, over-optimistic on the price of gold by 3.5%.

But again, timing is everything. When did gold last trade at $1,621? December 21. So, if 2011 had ended 7 trading days earlier, your average prediction would have been perfect.

Congratulations to JohnB, who predicted a closing price for gold of $1,650. That’s very good, only a deviation of 1.7% from the actual closing price.

As for me? I predicted that gold would hit $2,000 by year end. I was obviously over-optimistic. Or was I?

On August 23, 2011, and again on September 6, gold spiked well over $1,900 per ounce. On September 6 the intra-day high for the year hit $1,923.70. At that time I didn’t think a further gain of $76 over the final four months of the year was that big a stretch. But alas, it’s been down-hill ever since.

However, let’s not forget that gold was still up about 10% in 2011, and that’s the eleventh straight year that gold has risen.

Let me repeat: that’s 11 years in a row that gold has gone up in price. You can’t say the same for the Dow, or any other stock market index. That’s impressive.

So what will we see in 2012? I’ll provide my thoughts next week, but for now, it’s prediction time again.

Your Predictions for 2012

To participate in the 2012 prediction contest, please cut and paste the following section into an e-mail (replacing the XXXs with your predictions):

My name (no-one uses real names here; your Buy High Sell Higher Username is fine, or make up whatever handle you want): XXXX

I predict the Dow will close at the following levels, on the following days:

March 31, 2012 XXX

June 30, 2012 XXX

September 30, 2012 XXX

December 31, 2012 XXX

I predict the price of gold, in US dollars (assuming US dollars still exist) will close at the following levels, on the following days:

March 31, 2012 XXX

June 30, 2012 XXX

September 30, 2012 XXX

December 31, 2012 XXX

Here are my other totally random predictions (optional; such as your stock picks, the Super Bowl winner, whether or not the Mayans will be right, or whatever): XXX

That’s it. The deadline for submissions is January 2, 2012, before the markets open. You can post your predictions on the Buy High Sell Higher Forum, or simply e-mail them to me at predictions2012@buy-high-sell-higher.com. May the best predictor win.

Thanks for reading. Happy New Year. See you next year (and next week).

In a separate blog I have posted my thoughts on GLD vs Gold, so if you are interested in my thoughts on paper gold versus physical gold, please click the link.

This post is about our 2012 predictions contest, for which I offer no prize; you simply get the satisfaction of knowing you were the best predictor of the bunch.

As you will recall, your predictions for 2010 were almost perfect. You can read review your 2011 predictions to see how you are doing; it would appear you were overly pessimistic on your predictions for the Dow (but with the volatility in the markets there’s lots of time left), and your gold prediction is looking remarkably accurate.

Here’s the plan for 2012: Cut and paste the following section into an e-mail (replacing the XXXs with your predictions):

My name (no-one uses real names here; your Buy High Sell Higher Username is fine, or make up whatever handle you want): XXXX

I predict the Dow will close at the following levels, on the following days:

March 31, 2012 XXX

June 30, 2012 XXX

September 30, 2012 XXX

December 31, 2012 XXX

I predict the price of gold, in US dollars (assuming US dollars still exist) will close at the following levels, on the following days:

March 31, 2012 XXX

June 30, 2012 XXX

September 30, 2012 XXX

December 31, 2012 XXX

Here are my other totally random predictions (optional; such as your stock picks, the Super Bowl winner, whether or not the Mayans will be right, or whatever): XXX

That’s it. The deadline for submissions is January 2, 2012, before the markets open. You can post your predictions on the Buy High Sell Higher Forum, or simply e-mail them to me at predictions2012@buy-high-sell-higher.com. May the best predictor win. Next week I’ll reveal the 2011 winner, and you can see how I did.

Finally, as noted last week , I have re-opened the ability to register as a member on the Buy High Sell Higher Forum. The Forum generates a fair amount of spam, posted mostly by new members who join, post a spam message (an advertisement of some sort) and then disappear, never to be seen again. So, to combat the spam, I simply de-activated the ability for new members to register. However, as requested, new member registration is active again, perhaps for a limited time, depending on how much spam I get hit with. I’ve tightened up the spam controls, so we’ll see how it goes. This past week we’ve averaged about one new spam message a day, so I suspect I’ll be closing new registration at some point in the new year.

You may also register and post comments below each blog post on this site.

Thanks for reading; Merry Christmas; Happy Holidays; see you next week.

First, as I have done for the last three years, I am happy to give each of you the opportunity to make your predictions on where gold, and the Dow, will end 2012. Next Saturday, Christmas Eve, I’ll post the e-mail address where you can send your predictions, which will be due by January 2, 2012. More next week.

By the way, your predictions for 2010 were almost perfect. You can read review your 2011 predictions to see how you are doing; it would appear you were overly pessimistic on your predictions for the Dow (but with the volatility in the markets there’s lots of time left), and your gold prediction is looking remarkably accurate.

Second, as requested by a few of you, I have re-opened the ability to register as a member on the Buy High Sell Higher Forum. The Forum generates a fair amount of spam, posted mostly by new members who join, post a spam message (an advertisement of some sort) and then disappear, never to be seen again. So, to combat the spam, I simply de-activated the ability for new members to register. However, as requested, new member registration is active again, perhaps for a limited time, depending on how much spam I get hit with. I’ve tightened up the spam controls, so we’ll see how it goes.

You may also register and post comments below each blog post on this site.

Now, to the week that was.

Or, in this case, wasn’t.

The Dow was down, as were most other markets.

Gold got hammered. Gold traded at almost $1,720 on Monday, and almost touched $1,560 on Thursday, for a drop of over 9% in four days. And yes, with the close on Friday at $1,601, the 200 day moving average was broken for the first time since early 2009, almost three years ago. What does this imply?

It could be that the bull market in gold is over. All good things come to an end, and this may be it. It was a 10 year run, and now it’s time to sell and move to the safety of U.S. dollars, which is still the world’s reserve currency, simply because it’s the best of a bad lot.

But I doubt it.

I suspect that the Big Boyz are crashing the market to give themselves one more great opportunity to cover their shorts, which presumably happened this week.

I also suspect that in the stock market there was lots of tax loss selling going on, and why not? If you have losers, take the losses and redeploy your money into something else. If you own Gold Stock A, and it’s down, why not sell, take the loss, and put the money into Gold Stock B, which is selling at a bargain price? It makes sense.

I did not do any buying, or selling, this week. I don’t know if the sell off in gold is over, although I suspect that if it isn’t, it’s probably close.

So, as time permits, I’ll review the stink bid list and place some orders, and see what develops.

Beyond that, I haven’t a clue, so I’ll stop talking, until next week…

All is not good, because since the high for the year of 12,810 on April 29, we have experienced a series of lower highs (as indicated by the horizontal red lines on the above chart):

• July 7 at 12,719
• July 21 at 12,724 (which essentially formed the double top that lead to the massive summer drop)
• October 28 at 12,231
• December 7 at 12,196

See the problem? The Boyz keep doing their best to pump air into a flat tire, and for a period of time it sort of works, but only sort of. Then the laws of physics take over, and no matter how much air you pump in, you can’t inflate the tire to it’s former shape. More air gushes out, and the next round of tire inflation leaves you somewhat less inflated than before. Lather, rinse, repeat, over and over, with increasingly worse results.

Perhaps this isn’t surprising. The Eurozone is imploding, although every few weeks they manage to agree on a bailout, or whatever. The U.S. is also imploding, but at a slower rate, so it’s not surprising that the Dow is able to lurch forward before falling back.

Of course the same pattern is apparent with gold, with a series of lower highs:

Of course the difference with gold, as the blue uptrend line shows, is that we have also had a series of higher lows, indicating that despite all of the market manipulation, gold remains in a ten year uptrend.

So what’s ahead?

Eventually all the air in the world won’t inflate a flat tire, and down we will go. If I had to guess I would assume we will keep pumping until the end of the year, so that for the year the Dow can show a small gain (it’s up 5% year to date, although the S&P 500 is down over 2% year to date). By keeping the market positive for the year, the powers that be can say “see, all is good”, in the hopes of encouraging the sheeple to invest in stocks.

It won’t work, and the inevitable direction is much farther down, but that could be weeks, or months, from now.

In a general crash, everything will crash with it, including precious metals stocks. I suspect they will also be the first to rebound. So, the plan:

First, since it’s now tax loss season which puts pressure on losing stocks, you may want to sell your losers to free up cash (and save on taxes).

Second, because the losers will fall more than the winners during tax loss season, this would be a good time to place below market stink bids to pick up the companies you want. You will want to concentrate on companies with cash, since if we have another credit crisis arranging financing next year for projects will be difficult.

Third, keep your cash handy, because if we do get the crash, and then the inevitable flight to safety (ie. gold), the gold and silver stocks could go on the ride of a lifetime, and we will want to be well positioned.

For now, keep your bicycle pump handy.

Thanks for reading; see you next week.

Tomorrow and tomorrow and tomorrow,
Creeps in this petty pace from day to day
To the last syllable of recorded time,
And all our yesterdays have lighted fools
The way to dusty death.
Out, out, brief candle!
Life’s but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more:
it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.
– Macbeth, by William Shakespeare, Macbeth’s soliloquy Act 5, Scene 5

Many people consider December to be the most magical month of the year.

I am not one of them.

I’ve got nothing against Christmas. I like presents. I like turkey. I even like winter in Canada. The cold doesn’t bother me, or the snow (of which we have had essentially none so far this year).

What I don’t like about December is all of the activity.

As I write this shortly at 7:30 am on Saturday morning, my wife and son #1 have already left for the school Christmas bazaar, where they will sell baked goods and what-nots for the day, to raise money for a student end of the year trip. Son #2 is still in bed, but we have our own activity this afternoon when I take him to a group violin practice, in preparation for a Christmas concert in two weeks. Tomorrow Son #2 and I get to leave the house at 6:30 am so I can take him to meet his team at school to then drive an hour to the University for a student-built-robot competition. Son #2 is 11 years old, so he thinks it’s pretty cool that he gets to go to university for a day. I suspect when I wake him up at 6:00 am on a Sunday he won’t find it quite as cool.

Last week was a school play. Next weekend, more concerts. And so it goes. Lots of activity.

I’m more of a “keep the activity to a minimum” kind of guy. But that’s just me. Activity after activity seems like a whole lot of “sound and fury”, and in the end, what does it signify? Perhaps nothing.

(Of course we all remember that William Faulkner borrowed Shakespeare’s words for his book The Sound and the Fury, a story about the decline of a well-to-do southern family, but I digress).

So why am I going off on my own soliloquy about the sound and fury, lots of action, signifying nothing? Take a look:

On February 1, 2011 the Dow closed at 12,040.16. On December 2, 2011 the Dow closed at 12,019.42. That’s 10 months of now action.

But of course there was lots of action, lots of volatility during that time period. On April 29 the Dow hit 12,810. On July 22 it was still at 12,681. Then by September 23 it had “crashed” all the way down to 10,771, a “peak to trough” decline of 15%. Then the bounce back up to 12,231 on October 28, a recovery of 13.5%, and that’s approximately where we are today.

That’s a whole lot of sound and fury and volatility to get nowhere.

But is it fair to say that nothing is happening? Is it fair to say that JDH going to lots of Christmas activities is sound and fury, signifying nothing?

No, that’s not fair. From my perspective attending a concert for an hour and a half to hear one of my sons play for three minutes may seem unproductive. But for a young person with limited experience being up in front of a crowd, the experience of practicing, working towards a goal, and then conquering your fears and accomplishing something is, in reality, quite a good thing. You have to look below the surface to see what’s actually happening.

What is actually happening? Take a look:

While the Dow has not moved since February, the same statement cannot be made about gold. At the end of January gold was around $1,300 per ounce, the low point for the year. Gold peaked over $1,900 in late August and early September, and despite a “crash” to below $1,600 in September, today gold sits comfortably above all of the trend lines at $1,748, a nice comfortable 34% increase since the end of January.

That increase doesn’t “signify nothing”.

It signifies the continued debasement of the currency, and it signifies the slow but steady retreat from paper assets to something more tangible.

It would be nice if all of my gold and silver stocks were up 34% from the low, but alas that’s not the case. Most are up, but you would expect that with the leverage to the gold price if gold is up 34% the stocks should be a double. They aren’t.

But that’s fine. The hockey game is very rarely decided in the first period. If it’s football and if Tim Tebow is playing, the game isn’t decided until the last minute.

It takes a lot of patience to sit through a Christmas concert. It takes a lot of patience to sit through a manipulated stock market where the powers that be can manipulate a stock market back up to a nice round number like 12,000, and can work to keep gold under nice round numbers like 1,900 and 1,800. But in the end patience is rewarded. Gold, and the underlying stocks will eventually find their true level.

And the Christmas concert will end.

Thanks for reading; see you next week.

First, the Dow has broken out of it’s three month trading range (10,600 to 11,700) (click to enlarge the chart):

It would now appear that the next resistance levels would be the double top from July, around the 12,724 level. From there it’s only a short trip to the high for the year of around 12,810 on April 29.

Hard to believe, isn’t it, that on October 4, 2011, a mere 19 trading days ago, the Dow was at 10,434. That’s a 17% gain in less than a month.

Wow.

Obviously everything is fixed in the world, and we have no more worries. The stock market is up, gasoline prices are down, so consumer sentiment is at unexpectedly high levels. And it’s not just the Dow; the S&P 500 Index had it’s best month since 1974, and the Euro is up!

For those of you who don’t remember 1974, it was a really crappy year:

Fortunately 1974 marked the bottom of the bear market, with the S&P 500 hitting 62.34 on October 4, 1974, and it’s never looked back.

So, is this the start of a new bull market? Is October 2011 just like October 1974, where we reach the bottom, and never go lower again?

If you assume a bull market is a 20% gain, we aren’t quite there yet. Of course the S&P 500 was 1,353.22 on July 7, 2011, and then it was 1,078.37 on October 4, 2011, for a drop of 20.3%, which technically is a bear market.

So, this month, we have had both a bear market and a new bull market?

Huh?

What we have had, obviously, is volatility.

So, to answer the question, is this a bear market, or a new bull market, my answer is:

Yes.

We have a saying here in Canada: if you don’t like the weather, wait ten minutes and it will change. Back on Canadian Thanksgiving Day, October 10, it was warm, and I went for a swim in our outdoor pool. Yesterday morning, October 28, the temperature was below freezing, and there was frost on the ground. (And yes, the pool is now closed for the season). It would appear that our weather is as volatile as the stock market.

But a new bull market? Call me a skeptic, but I have my doubts. We still have high unemployment and massive deficits, and the Eurozone problems have not been solved; they’ve simply been papered over.

The precious metals markets appear to agree.

Gold traded in the 1,600 to 1,700 range from September 26 to October 24, when it exited the range to the upside. That’s good news for gold investors. For the first time in more than a month gold is now above it’s 50 day moving average, and even during the correction it never dropped below it’s 200 day moving average. That means this correction was a great buying opportunity.

Let’s look at more charts. Here’s gold, over the last six months:

Here’s HUI (the Amex gold bugs index, a basket of gold stocks) over the last six months:

In October, HUI has bounced from 500 to 582, a bounce of 16.4%. Gold has bounced from a low of $1,600 to $1,744, a gain of 9%. Obviously, finally, gold stocks are demonstrating move volatility than the gold price. That’s good, because that’s exactly what should be happening. We invest in gold stocks for the leverage.

An even nicer chart, silver:

After bouncing around in the $30 to $33 range for the last month, silver has broken out of the range, ending the week at $35.37. When you consider that silver traded as low as $26 on September 26, that’s a bounce of 36% from the low, a much bigger swing than gold, or gold stocks.

Hopefully this indicates that the silver manipulation is ending. I assume the bounce was the shorts covering in advance of proposed position limits (which probably won’t come into force for many months, but it’s a start).

One final chart, SVM.TO – Silvercorp Metals Inc.:

Silvercorp Metals Inc.

On October 8 I said that Silvercorp Metals is a strong buy, because I assumed the short sellers would be proven wrong. At that time Silvercorp was trading in the $8 range. Today’s it’s at $9.80, thanks largely to the report by KPMG, commissioned by Silvercorp, that the short sellers were full of crap. Silvercorp was over $15 earlier this year, and I see no reason why it can’t regain those hits. I’ve taken a significant position, and I’m holding.

So, to conclude:

• gold, good
• silver, better
• gold and silver stocks, probably even better than the metals in the medium term
• stock market, could be a new bull market, but I think a drop of 20% is just as likely as a further 20%, so take your profits when you have them, and keep some cash ready.

Finally, last week I asked where you would invest $100,000. So far precious metals are leading the poll on the side of this page, but if the stock leverage continues, they make take the lead in the future. I favour a mix of both, but if you are worried about risk, you can’t beat physical metal.

Thanks for reading; see you next week.

Of course I am a cynic, and I don’t think we are out of the woods yet.

It’s true that the Dow has made it almost all of the way back to the previous highs in mid 2008. The recovery from the lows has been astounding, although not surprising when you consider the massive amount of money thrown at the problem by the government.

There was frost on the ground Friday morning (the first time this season), so instead of going outside for a run I spent half an hour on my Elliptical machine, watching CNBC (also called CNBS). I heard Donald Trump interviewed, and he told the hosts that banks were offering him money at half of one percent on loans. The banks have so much “free” money that they are willing to lend it out to their “A” level borrowers for just half a point over free.

Even The Donald thought that was ridiculous, and he’s advising people to put their money in “hard assets”, which to him means real estate and real companies. He realizes the dollar is headed for further erosion.

My version of hard assets, of course, is gold.

Here’s what I find striking when comparing the chart of the Dow to the chart of gold: The Dow has spent a great deal of time under it’s 200 Day Moving Average; gold hasn’t dropped under it’s 200 DMA since the beginning of 2009.

What does that tell you?

It tells me that the Dow, a very narrow measure of the U.S. market, is very volatile, while gold, a much smaller market in dollar terms, is on a sustained march upwards.

So the plan remains the same. Put in some stink bids because inevitably over the next four to eight weeks the market will have another shock, driving all stocks down, and that will be the perfect buying opportunity.

Precious metals traditionally do well in the first quarter, so being positioned for that appears to be the prudent move.

Thanks for reading, beware of space junk falling from the sky; see you next week.

It was a fun week, if insanity is your idea of fun. Allow me to elaborate…..

The week started on August 15 with the anniversary of the of day, 40 years ago, in 1971, when U.S. President Richard Nixon killed the gold standard. So, I started the week with my thoughts on whether or not a return to the gold standard would make any difference. (Hint: with the politicians in charge, a new gold standard would not be guaranteed to do us any good).

Every fiat currency in the history of the world has ended in failure, and yet politicians continue to believe they can continue to print money with no tether to reality, with no ill effects. That’s the classic definition of insanity, if ever there was one.

But wait, there’s more! It’s not just the politicians that are insane.

Did you read about that woman in Arizona who wants to see if she can eat enough crap to get her weight over a ton! It’s true; her goal in life is to set the record for morbid obesity. To quote the article: “The unemployed mother … cannot work because of her weight.” Ya think? So presumably she’s on welfare, supported by the state, in her quest to become the fattest person ever.

That’s insane.

Speaking of food, did you know that famous junk food eater Bill Clinton is now vegan? Is that insane, or what?

Enough nonsense; what about the markets?

Strangely, the only thing acting completely sane is the markets. We have record deficits, high unemployment, and dramatically lowered consumer confidence, so you would expect the markets to be tanking. And they are.

After peaking around 12,750 thanks to QE2, like a kid crashing from a sugar high the Dow is now below 11,000, and I see no reason why we won’t see 10,000 in short order. 9,250 is also a possibility.

Of course when that happens the government will start QE3 to reinflate the market, and that’s when the true insanity will begin.

Also not surprising is the action in gold. You would expect that during a currency race to the bottom, gold would do well, and indeed it has.

It would appear that $1,500 is now a major support level, so while a correction from these lofty heights would not be unexpected, the longer term trend is obvious.

(Speaking of unexpected, you remember those 2011 predictions some of us made at the start of the year? On the JDH prediction page you will see that for September 30 I predicted gold at $1,800, and the Dow at 10,000. It would appear that even I, the Great Cynic, was not cynical enough…….).

Interestingly, there remains some insanity in the gold stock market. Let’s review. Here’s gold:

And here’s a senior gold producer, AEM.TO – Agnico-Eagle Mines Ltd.:

From $87.50 in December down to $52.50 this month, it has not been a fun ride. Clearly gold stocks don’t follow gold exactly in the short term. (I wish they did; I picked the trend correctly, but my investments in stocks have under performed).

Over the medium to long term, however, the stocks will rise, so I’m assuming that we will be playing catch up this fall, and that’s good news.

Of course some stocks have done better than others, which is why, for example, I’m glad I own FNV.TO – Franco-Nevada Corp.

So what’s the plan from here?

I wish I knew.

I was hoping for a drop in gold so I could load up; obviously that hasn’t happened. Fortunately along with cash I maintained my core position, so I have participated in the recent rally.

I don’t expect to do much buying this week, although I am tempted to grab a few puts on the market in general. We’ll see what kind of mood I’m in on Monday.

Thanks for reading, and see you next week, assuming I don’t go insane before then.

He asked me why the market crashed, and I explained how the government was printing money like crazy, and eventually you have to pay the piper.

He seemed unfazed, and after asking me a bunch more questions, he said, and I quote:

So basically the market skinned it’s knee? Don’t worry, it will scab over. If not the government will put some gauze on it.

Smart kid.

Sure enough, Monday’s crash was followed by an up Tuesday, then a down Wednesday, and an up Thursday, leading to a basic flat week by the end of the day Friday.. Monday started with the Dow opening around 11,200, and by the end of the day Thursday the Dow was around 11,200. Massive swings, but the ups and the downs balanced each other out. Sort of. Except that year to date the Dow is down, and over the last month the Dow is way down.

And gold is way up. Which is good.

This leaves us with two alternatives: stand aside, or play the volatility.

Playing the volatility is fun. You can do a “straddle”, either with ETFs or options or whatever you want. For example, you could buy a call and a put at the same strike price, expiring in one month. If the market goes way up, your put may be worthless, but you make lots on the calls. If the market crashes, vice versa. The fun thing about volatility is that if the market does go way up, you sell the calls at a profit, but hold the puts, because perhaps tomorrow the market will crash, and you can then sell the puts, probably also at a profit.

Of course in practice it’s not that easy.

For example, on Thursday the S&P 500 closed at 1,173. You could buy a September 1175 call for $45. The put would cost you $32.50. (I’m ignoring the bid/ask spread to keep this simple). If you bought one of each, and ignored commissions, you pay $77.50. That’s a massive time premium, so the market will need to move very quickly, very fast, for you to recover your investment and make money.

Which is why I picked alternative #2: stand aside. I have no idea if tomorrow will be an up or a down day, so I sit on the sidelines and wait.

As it turned out, the Dow was up somewhat on Friday, so at the end of the week the Dow was only down a bit.

Gold had a great week, as did most of my gold stocks.

What’s next? I wish I knew.

I will continue to operate under the assumption that the trend for the markets is down, with violent swings both up and down, occasionally. That’s why I have no intention of holding basic stocks.

Gold, on the other hand, and silver, have obviously proven their worth as a store of value during this past week’s volatility. That’s where I will continue to hold my resources, until the bottom is in, many thousands of points from here, I suspect.

Thanks for reading; see you next week.