Going into 2016, I thought I had it figured out. I was shorting gold miners with a 3x leveraged inverse ETF using a very simple swing trading strategy. I was quickly up 30%.
Then, in January the market reversed higher, crushing my position much faster than I could react. Everything was on my side, momentum, sentiment – but prices moved against me anyway.
Using 3X leverage meant that my 30% gain evaporated quickly. I thought I had more time because gold hadn’t quite hit extreme support levels.
A common belief among traders is that gold will move to extremes, and only reverse once a new extreme position gets taken out.
It’s not true. Assets (including gold) don’t have to hit an extreme in order to reverse course. Price data is backwards looking. New prices tomorrow always change tomorrow’s data story in ways that no one can consistently predict.
But the media landscape for gold is filled with people doing little else but making concrete price predictions.
Right now, you can find a thousand different “analysts” online making any price prediction for gold that you might prefer. The most cunning of these analysts will put up multi-factor charts with a slew of price support levels and predictions built into them.
Six months from now, when one or more of their “predictions” pans out, they’ll re-post their chart, and re-tell the story in a new social media post about how they called the price action correctly all along, circling and annotating their chart to point out where they were correct, but ignoring the other 10 incorrect scenarios within the chart.
It’s a neat trick.
My stance is different. I can’t just put up charts on twitter with a dozen different predictions. I have to find attractive buy and sell points for my model portfolios. There’s no way to fool investors when you have concrete entry and exit points.
You Don’t Have to Predict the Crash
Nobody knows exactly when the AI boom ends. Fortunately, Garrett Goggin says you don’t need to. Because gold miners are already producing record-high cash flow and profits – and yet mining still makes up only about 1% of global equities. Porter Stansberry recently called Garrett, “THE most knowledgeable gold analyst in the world.”
Calling on 100-years of market returns, Garrett identified a pattern for knowing when money will stampede out of growth/AI stocks and into gold miners… and the four best miners to own before institutional money discovers the same trade.
Go here for details on Garrett’s four “Great Rotation” gold miners
Last Friday, I advised readers of my paid services to close any and all short positions on metals or miners.
As I wrote to my paid subs on Friday: “Silver is down more than 20% in a month. The GDXJ is down over 10%. The price action is ugly. It looks like a waterfall price smash could occur over the weekend into Monday. Total capitulation looks to be immediately ahead of us. The timing is always impossible. Use prices to your advantage to cover your profitable shorts, since nobody knows what will happen tomorrow.”
To reiterate: no one knows what the market will bring, but I’m putting my reputation on the line by telling my readers that the end of the correction is likely near.
Is this the end of the correction? I don’t know.
A long term support level appears to be down below $3,500. Will gold get that low? I don’t know. If it did, it would be an unusual move, and my call would be a bit early – calling the bottom within ~10%.
That’s a smaller risk than waiting, only to watch the gold sector reverse course from here, and rip higher like we saw in 2016.
If you’re extremely risk averse, then I hope you’ve been taking profits from your gold positions. My longstanding recommendation is to periodically rebalance your portfolio.
If your goal is to have 10% of your investable assets in gold stocks, then you should probably rebalance monthly or quarterly (or at the very least, annually) to make sure you’re not overweight the sector. If gold stocks soar and become 25% of your portfolio, you should be paring them back to 10%.
The promise of a massive bull market in gold does not absolve you from following basic portfolio management guidelines.
That’s why I’ve been telling my readers to take profits as well as to hedge with shorts.
But I believe we’re almost through to the other side of this correction.
If my business was reliant on having perfect timing about price reversals, I might be a little bit more worried about being wrong in this case. But that’s my business. My business is helping people find profitable buy and sell points for gold stocks.
I don’t have to be perfect to be very successful in this venture – as you can see from the hall of fame chart below.
If I’m wrong on the timing of this reversal, that’s okay, because I know I’m still putting my readers into world class gold stocks at a discount.
The long term track record is more important than getting short term predictions perfectly correct.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio
