Gary,
I'm a long time reader of your blog and a former subscriber who wants to comment on your "More sanity from 'BiiWii World'." On March 6 after careful analysis, which included considering a great chart you had posted predicting the low on the S&P might be 666 (man did you nail that one), I throw all my chips on the table and went [aggressively] long buying leveraged ETFs, and options on the leveraged ETFs, and concentrated on the banking indexes. Within a month I was up over 100% and in a fit of near panic sold everything in two days. The markets looked terribly overbought and I wanted to preserve my gains. I have since then watched the indexes continue to climb with the realization I would be up almost $700,000 if I had held on. I would have been financially set for life. What still kills me is I had targets far above where I sold.
You're "Anticipatory Hindsight" post does not address how the individual will feel if gold [continues] to rise. I remember a post you made a while back predicting that many gold-bugs would miss the eventual explosive move gold is going to make and I'm afraid you might be in that camp. As I'm sure you're aware there are technical patterns (multi-month triangles which have been broken by Gold/HUI); seasonal factors (biggest gains for gold always come between September and [February] because of the Indian wedding season, followed by Christmas, followed by Chinese New Year's creating [jewelry] demand); and now the Chinese government is broadcasting messages to its public advising them gold is a good investment. I live in China and guarantee the government here would not be broadcasting these [infomercials] if they did not feel very very certain gold was going up.
I've gone aggressively long again, this time betting on the leveraged gold ETFs, silver ETFs and GDX. However, this time I have targets and I will be using trailing stops. I will not base my decision on an "Oh My God I've made so much money and I don't want to lose it all moment."
Is gold overbought - absolutely. But it was also overbought in [September] 05 and September 07 when it made massive 30-50% moves upward. The only factor that scared me before making my recent investment was the fact that the commercial traders are massively short. But guess what, on a [percentage] basis, they were even more short when the moves up started in September 05 and 07. Anyhow, my analysis tells me gold is going to 1300, and GDX to 75 by February. I'll either sell at those targets or get stopped out on the way there. Either way I hope to be making a rational decision, not an emotional one.
Best,
Guy
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Guy,
Which is exactly why I say physical gold should balance 'paper' portfolios. Tucked away and basically forgotten about, emotion not being part of the process.
It is also why I still hold a core of gold stocks, mostly smaller ones (that tend to make the biggest moves in latter stages of rallies). My discipline is to do so despite the mounting risks. Nobody is a bigger gold bull than me. But I simply cannot stand for the hype in the sector and all the Indian Jewelry seasons and Chinese infomercials in the world do not change that view. My subscribers are going to know the risks to the gold miners in the short term. Risk is just that, risk. It is not a prediction. Readers of what I have to write have to manage this information through their own viewpoints and orientations.
I never make predictions. I did not predict the events coming out of March as you state. I merely stated the probabilities. Same with the gold miners now. For what it is worth, I still maintain the sector may one day take off without some of its most ardent supporters, and you are right, it could be now because there are a lot of folks who never got aboard. But it will include me because I am doing the mentally difficult thing and maintaining exposure despite the risk environment. Hedging w/ options helps in this regard.
As you know, I stepped up to the plate and bought gold stocks when nobody wanted them in October/November. That was hard to do. The gains have been awesome and now the risk is high. Our orientations are different and you being a long time reader of the blog know that I am a BOTTOM FEEDER. I am comfortable being short other peoples' anxiety and uncomfortable being long their greed. I cannot help it and anyone reading what I have to say should consider that. It took a lot of training to get myself to the point of being comfortable in a contrary mode and it has worked well thus far. I cannot change now due to worries like 'what if I am wrong?', I could well be. But this is what makes a market.
Thank you for your well thought out mail and I wish you luck.
Regards,
Gary
PS: May I re-print this exchange for the blog's benefit?
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Hi Gary,
Please feel free to reprint for the blog. By the way, I was also buying in October/November. Sometimes I'm a bottom feeder, sometimes I buy the breakouts. I think both approaches work so I try to employ both strategies.
Regards,
Guy
