Golden Fortunes
Sept 18, 2011

What a roller coaster ride we had this past week in the gold and silver market, including the gold mining shares.  This past week was probably an exceptionally volatile period in the markets because of Option expiry on Friday.  As I mention in last week's Golden Weekly Review 09 11 2011, the financial war has been raging for 10 years and this past week's take down on gold and silver was more about trading to book profits or losses depending on what side of the trade you where on, versus fundamentals in the precious metals sector.  Unfortunately gold, silver and the mining shares where a casualty of war this week as it started off great, but ended down over all. 

Investing in gold and silver is difficult at best under normal circumstances but when we get distortions in trading activity which don't make and go against fundamentals, you look for reason to explain the price action.  While we understand the fundamentals for gold, silver and the mining companies longer term, North American investors, traders and hedge fund managers only focus on short term opportunities to make a quick buck and usually at someone else 's expense. Investing is a zero sum game and so for every winner there is a loser, but the house is always a winner because they get their commission/fees regardless.  So unless you are a great trader and understand fundamental, technical and the true nature of these markets, I would suggest you sit tight and be right on your investment decision.  What we are entering into over the next few months could easily turn into a very explosive and volatile market where fundamentals and technicals may not even apply and definitely wont matter.  If you don't have a strong stomach for this kind of volatility where we can easily see 5- 10% swings either way over a few days, you may want to consider just getting out of the stock market all together.  You really don't need the stress and you definitely don't want to be a casualty of the current financial war being fought on all asset classes, including gold and silver.

What we are entering into this fall and winter is totally uncharted territories in financial markets where at any minute the whole system could collapse, stay the same or even explode to the upside.  For now, the highest risk is really in the financial sector, I would stay away from financials all together.  That means selling your shares in banking, insurance and any industry related to financials (including paper real estate such as ETF or funds and bonds).  I would highly suggest going to cash with that money ASAP and look for good entry points to buy more gold, silver and precious metals related assets.  Like I said before, there is no reason to be investing in these sectors because there is no upside for growth, but they have all the ingredients in place for a downside implosion.  They are highly leveraged, underfunded and full of bad loans, let alone they cook the books just like the central bankers and governments.   As we mentioned before, the bankers and governments are the root of the problems that we see in the financial sector, not the cure.  By you investing your money in the financials, you are only continuing to support the bankers who have done nothing but steal from you and put you into more debt.  Remember, we are in a game of currency wars currently being fought by bankers around the world who will do nothing but destroy everything you believe to have value.

What can I do to protect myself?

I would love to say buy gold and silver stocks today, but at the moment I can't recommend that either except for buying the actual physical gold and silver.  Even thou I fully believe in gold, silver and the mining companies, they can and will probably be another casualty short term in this war.  Remember, in an environment where fundamentals can be easily overlooked or manipulated short term, anything can happen to gold and silver.  Could the price for gold go to $1660 or $1900 over the next few months?  Absolutely it can, in the paper based money system we live in anything is possible.  But take solace in the fact that in a few months, the paper based manipulated gold and silver market will soon come to an end as we move to a cash based market price for gold, silver and most commodities.  The de-leveraging the system will go thru will be great for the longer term price stability, but investors in gold, silver and the mining stocks will have to go thru this volatile period over the next few months and anything is possible in terms of price swings and valuations.  I am not sure what to tell you at the moment, buy, sell or hold is really all up in the air for the next couple of months. 

If you are worried, start raising some cash in case everything gets cheaper.  If you have a long position, you may want to consider hedging that position by either shorting, buying put options or inverse ETF's  that go up in price if gold and silver go down,  Horizon has a gold bear ETF symbol HBD-T and silver bear ETF symbol HZD-T.  There are many options for you to protect your gold and silver positions and create a hedge, however I personally do not short anything gold or silver related.  For me, its a moral issue about my investment decisions and that I don't want to fuel the fire for more downside action in gold and silver.  I am a long term investor in the precious metals sector, so why would I want to bet short term on something I want and believe should go higher, its counterproductive for the sector as a whole.  But I understand there may be people invested in gold and silver who just want to make some quick money with quick in and out trade and some others who really need to hedge their positions.  As an investor, only you can make a decision on what is morally right and best for you, and if that means making money by shorting the precious metals sector, good luck to you and your trades.  But keep in mind, you really are not doing the sector any favour by shorting it now just to make some quick money, in fact you are actually working and helping the price suppression and manipulations of these markets.

Below is our analysis of the one year chart of TTGD - S&P/TSX Global Gold which is a representation of the gold mining sector.  For now, we can easily see that a sideways trading range is being developed and today we are in the middle of the range.  The new trading range seems to be between 400 and 450, so the best way to trade these markets is to buy when the index is down significantly and sell on any rally to the top of the range.  Eventually the price will break out of this 10-15% trading range we are in and we still believe it will be to the upside.  Its only a matter of time when it does break out, but for now play the range.  Longer term, the fundamentals will rule the day for the precious metals sector, but that will only be when we move to a 100% cash based market, until then enjoy the roller coaster ride that all markets will take in the next few months.

In the next day or 2, we will be updating our members with a review of our portfolio holdings and provide new trading ranges currently being established by the market.  

Cheers