There are very few places you can go to get objective thinking about the precious metals – and we’re one of them.
The world of newsletter publishing is, sadly, awash with hacks, more interested in being right than in making money. And that’s where we differ.
We love the precious metals as insurance against a financial firestorm, and we always have. But we’re not always investors in gold. That is, we don’t always have a long bet on that commodity in order to make money.
And that’s caused not a little confusion amongst some of our readers.
An Analogy Will Help Clarify the Issue
There are drugs made for those who suffer from earaches.
And there are drugs made for those who have cancer.
And one does not administer the earache medicine to the cancer sufferer in order to alleviate the latter’s problem.
So, too, of course, the other way.
And this is precisely the point when it comes to purchasing precious metals – and every other asset class and security.
Gold, as we said, is sound insurance against a financial collapse or monetary crisis. It’s a recognized, proven means of storing wealth while the world figures out what it’s next going to use as a currency, and at times it has also been used as a currency. There’s nothing that accomplishes the task of protecting oneself in times of crisis – famine, war, civil breakdown – nor that ever will, in our estimation.
For wealth storage. Choose gold.
To be sure, there are other ways of storing your wealth, though none are as easy or as portable as the yellow metal. Oil will likely always have a liquid and robust market – but go set up a facility that safely and inexpensively allows you to sequester your savings in such a form. Fine art and jewelry might also accomplish the task, but so much of that market is subject to taste and fashion that one never knows exactly what one’s holding, never mind the fragility of such items and their proclivity for wear and tear, if not outright destruction with time.
The problem arises when we begin to mix our goals and confuse rationales for holding things like art and precious metals.
If, for instance, we buy gold because it is quickly appreciating in value and we wish to profit from it, then our goal is quite clearly to grow our capital base from that commodity as we would from any rising market, be it in bonds or lumber or social media stocks.
So, too, it stands to reason, that if gold is a declining asset, if the price momentum is down and looks to be continuing lower, we should be aiming to profit from this development by shorting it, buying puts, creating convertible hedges, anything, in short, that will continue to aggrandize our capital base, as before.
What we cannot allow ourselves to do, however, is to change our rationale for holding said instrument once things top out and start heading lower. That is, we cannot argue that we had a profit motive while the thing was rising, but now that it’s falling, and we’re still holding it and losing money, that our goal is really to hold ‘insurance’ against an inevitable fiat currency breakdown.
That’s what’s known as self-deception. Some call it lying. But however you slice it, just remember that it has made a pauper out of many a successful hardworking investor.
Don’t Lie to Yourself
The long and short of it is that you gotta be straight. Know what your true goals are and play the game accordingly.
And if you’re in it to make money, then look here –
The technicals for gold, as represented by the SPDR Gold Trust ETF (NYSE:GLD), present a mixed picture for the metal.
On the one hand, the falling wedge (in red) is a fairly reliable reversal (bullish) pattern, with a breakout above the top line indicating a prime entry point.
On the other hand, both RSI and MACD (in blue) are sub-waterline, with the latter confirming RSI’s most recent plunge just a few trading sessions ago. That normally spells trouble for a stock, and it could be that with a new bout of selling, the falling wedge could quickly morph into a declining trend channel, and then the bulls would be in a real pickle.
So which is it?
Let’s step back a moment to look at the weekly picture, as it often provides a more ample view of where the money’s headed.
Here, you see a declining triangle fourteen months in the making (in red), a bearish formation that calls for selling when the breakout below the bottom line occurs.
That combined with RSI and MACD readings that have just submerged below their respective waterlines (in black), and you have additional honey for the bears.
And with no real change in volume for the last two years (in blue), the case can hardly be made that we’ve hit bottom.
Feel free to long date your gold PUTs, friends.
At least those of you who aren’t bothered by making money from the PMs.
Many happy returns,
Matt McAbby, Senior Analyst, Normandy Research