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Simple Gold Strategy Says "Stand Aside" This AugustBy
Friday, July 30, 2010
Earlier this month in DailyWealth, I introduced you to my Simple Gold Strategy that turned $10,000 into $2 million.
When this indicator says, "Buy," gold compounds at 35% per year. When it says, "Stand aside," gold decreases in value.
Take a look:
The indicator is embarrassingly simple... but really effective.
The idea behind it is: You want to own gold only when it is in a bull market. But how do you know if gold is in a bull market? Here's how I define it...
Gold is in a bull market if it is going up not just in terms of U.S. dollars, but in terms of the four major currencies (the U.S. dollar, the euro, the yen, and the British pound).
Specifically, if gold is up versus all four currencies at the end of a month, you want to own gold for the next month.
If gold is down against even one currency, it's not in a bull market. Whether gold is down in just one currency, or down in all four currencies, the result is the same: You lose money in gold.
It appears gold will end July DOWN in all four currencies. If you want to trade this indicator, you should be OUT of gold for the month of August... This indicator says, "Stand aside."
While this system has proven to be an effective system for trading gold, it doesn't mean you need to sell all your gold now.
This system will be in and out of gold a few times a year. It is a trading system, which shouldn't have much to do with your long-term gold holdings.
On the other hand, if you don't own gold yet, you might want to wait for this system to signal "buy" again... If you do, you'll be buying into what's historically a moneymaking time for gold.
Gold doesn't look great in the short run... Our Simple Strategy says gold could have a rough month in August. The recent gold price trend isn't good.
Big falls in the price of gold are typical in major gold bull markets... A 50% drop is not out of the question.
In my opinion, it's better to wait for gold to bottom and start an uptrend again to buy... Instead of trying to catch a "falling knife," wait for it to hit the ground and settle, then grab it.
In short: Yes, you want to own gold for the long run. But based on the Simple Strategy and the trend, the short run doesn't look promising. Trade accordingly.
Good investing,
Further Reading:
If you want to use Steve's Simple Gold Strategy to know exactly when the time is right to start buying gold again, don't miss his July 15 essay. You'll get more details on how to follow this indicator – and why it performs almost seven times better than buy-and-hold – here: Turn $10,000 into $2 Million with My Simple Gold Strategy.
Market NotesA HUGE BEAR MARKET IS ENDING This week brings good price action for uranium bulls like our colleagues Marin Katusa, Chris Mayer, and Matt Badiali...
The bull case for uranium – the chief fuel for nuclear reactors – is that "emerging" Asian nations are embarking on a building spree of nuclear plants to meet a portion of their growing electric needs. Meanwhile, new supply is unlikely to rise in lockstep with all this new demand.
These factors produced a more than 10-fold rise in uranium from 2003 to 2007... The end of that rally was fueled by speculators, who helped produce a subsequent crash. This crash hammered uranium prices and the companies associated with the stuff. But as you can see from today's chart of Uranium Participation Corp, uranium investment is getting a little "less bad" these days.
Uranium Participation Corp is no mining or exploration company. It's simply an investment vehicle that hoards uranium and acts like an exchange-traded fund for the stuff. The stock has been locked in a major downtrend over the past few years. But over the past few weeks, it has broken out of this downtrend. It's no sure indicator the bear market in uranium is over, but it's a step in the right direction...
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