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A Rare "Buy" Signal on GoldBy
Thursday, July 12, 2012
The bull is back...
Now is the perfect moment to own gold... Sentiment is still negative. And we have a hint of an uptrend.
This is exactly what we wait for.
In short, things are getting "less bad" in gold. And our True Wealth Systems computers tell us it's time to buy. Based on history, we could see enormous gains over the next few months. Let me explain...
Our computers recently started flashing a rare "buy" signal on gold...
As my True Wealth Systems readers know, we track gold two ways. Our first "Gold in Currencies" system tests gold versus four of the major world currencies.
The idea is simple... We want to own gold in a bull market. But what is a gold bull market?
You might hear people say, "It's not a bull market in gold... It's simply a bear market in the dollar."
You see, if the U.S. dollar is crashing against other currencies, it's likely also going down in terms of gold. So it looks like gold is in a bull market. But what if gold is falling in terms of the euro or yen while it's rising against the dollar? That's not a gold bull market.
So what is a bull market in gold?
One simple definition is: When gold is going up in terms of all the world's most important currencies, it's a bull market in gold.
We used this definition to come up with a simple system for gold. We tested the idea on four major currencies... the U.S. dollar, euro, British pound, and Japanese yen.
If the average price of gold is up in all four currencies versus the previous month... buy gold. Repeat the next month. That's it.
I know, it sounds too simple, but it works... We want to own gold when this system says "buy." We've tested the idea on 40-plus years of data. The results are astonishing. Take a look at this chart from the most recent True Wealth Systems...
.gif) Based on history, buying a double-long gold fund when this system says "buy" is good for 41.4% annualized returns.
Yes, that's right. This system returns over 41% a year when it flashes "buy."
Importantly, these signals are somewhat rare... Our computers say "buy" less than one-third of the time... Meaning, on average, we'll only get about four buy signals every year.
And right now, the True Wealth Systems computers tell us now is the time to buy gold and ride it higher.
The thing is... We still don't have the uptrend, based on our "Gold Uptrend" system. I'm not concerned, though... this system is a bit slow to signal. Our "Gold in Currencies" signal can be a great "early sign" of a new uptrend in gold.
In short, based on our historical testing, we could be at the brink of a major breakout in gold... without a confirmed uptrend.
I pored over the data and found an incredible result...
In 40-plus years of testing, we've seen six MAJOR gold bull trades. (That doesn't sound like many. But remember... gold went down, consistently, between 1980 and 2000.) Our "Gold in Currencies" system said "buy" before our "Gold Uptrend" system did at the beginning of every trade except one. (In that case, they signaled at the same time.)
In these five cases, our "Gold in Currencies" system signaled "buy" one to three months before the "official" uptrend kicked off. However, being a few months early can "juice" our long-term gains...
The average return on our five gold uptrend trades was 110%. That's an incredible return. However, by following our "Gold in Currencies" system into the trade a few months early, we're able to increase our average return to 133%.
Importantly, every one of these trades was MORE successful because of following the currency system in early.
Today, we could be on the verge of another major move in gold. Of course, we can't know if this is the case. But simply based on history, we want to own the yellow metal when our "Gold in Currencies" system says "buy." Historically, it's good for 41.4% annualized returns, regardless of predicting a new uptrend.
You get the idea – right now is a great time to buy gold. It is still a bit hated, and we could be on the brink of a major uptrend.
Good investing,
Steve
Further Reading:
The cost of producing an ounce of gold is soaring, but one group of gold companies couldn't care less. Earlier this week, resource expert Matt Badiali told DailyWealth readers about one of his favorite ways to play gold. "These companies are largely immune to the rising cost of mining gold," he writes. Get the full story here: The World's Best Gold Companies.
Market NotesCHINA'S UGLY NUMBER China is approaching an ugly number...
Regular DailyWealth readers know that China is the center of a great financial debate. Some world-class investors, including Jim Chanos, say the country is a powder keg of government malinvestment... which will cause a huge economic slowdown. On the other hand, you have many "China bulls" who say the bearish arguments are overblown and overhyped.
What happens in China has a huge effect on your portfolio. China is the world's workshop, and one of its largest economies. It's also a voracious consumer of commodities like crude oil, iron ore, and copper. When China has problems, it sends stock and commodity prices lower.
You can track this situation with the Shanghai Composite Index. It's like the "Dow Industrials of China." As you can see in the chart below, this index has made a big move lower over the past few years. Early this year, the index tried to form a bottom and rally. This rally has failed... And the Shanghai Composite is now close to registering a multi-year low. If the previous low around 2,200 (A) is violated, it's a major warning signal.
– Brian Hunt
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