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  • Archive for the 'Gold/Silver' Category

    Final plunge of gold/silver in the next two weeks

    Posted by Frugal on 1st July 2011

    It’s good that today gold price is finally starting to correct. Based on the cycle of gold, it should bottom in 1 to 2 weeks. Silver however may make the final low at 30 or even 26. I wouldn’t touch silver until the second wave down is over.

    Here are the new targets based on previous ratios:
    1. Gold bottoms at $1442, or $1393.
    2. Silver bottoms at $30.x, or $26.x. It is preferred that silver doesn’t break below $26, or else the picture may be bearish (for 12 to 16 months).
    3. If GDX already bottoms at $51.10 (as I have guessed in my previous post), the next short term low would be at $52.00. If not, it should bottom at $50.46. If GDX breaks $50, then the picture turns bearish (for 6 to 9 months). Timing-wise, It will still bottom if it breaks $50. However, you will need to sell all the counter-rallies, and wait for much longer to get back in.
    4. GDXJ may still break the last bottom at $32.06. It’s bottom should roughly coincide with GDX within 1 day of difference. I hope it stays above $31. Breaking $30 will be bearish again just like GDX.

    I arrived these targets by using the previous peak to bottom ratio and applied to the last peak (e.g. for gold at $1563.20). There is no magic tricks here.

    I think there is still a significant possibility for gold-related complex to take an extended breather here, possibly until early next year. This risk is obviously due to the parabolic behavior in the recent silver bubble. Caution and patience are required here. I think it is still a trader’s market.

    Posted in Gold/Silver | Comments Off

    Mining stocks not out of woods yet

    Posted by Frugal on 25th June 2011

    The precious metal stocks have gone through a roller coaster ride like always. It looks like it probably have made the bottom for this down wave, but I don’t think the wave 2 of major wave 3 is over yet. Time-wise, it has only been 7 month correction (since last November top), and I don’t think it’s enough. I think there will be another big but short pullback probably in the month of September.

    Gold however has never really corrected, and that really worries me. I am not sure how sustainable the rally will be. I have a feeling that it will see a price of less than $1400 before it can possibly hit $1850.

    Putting everything together it seems that maybe this wave 2 of the major wave 3 in mining stocks could last much longer than anyone expects.

    I think it is quite clear that the government authorities want commodities to have a bigger correction before they can afford putting QE3 into high gear. They also need the Congress to approve the increase of the debt ceilings first, before Fed can take the new debts onto their book. I expect that another major stimulus probably will come before the election of next year starts in earnest.

    Currently stock markets probably need to go down further, so that Bernanke can rationalize the next round of money printing.

    I will be buying just some more, but to go fully invested, patience is still required.

    Posted in Gold/Silver | Comments Off

    What will happen after silver mini-bubble crashes?

    Posted by Frugal on 29th April 2011

    This is just my hunch. I could be wrong, but I might as well take some guesses.

    First of all, an important thing happened today. Gold appears to be entering a similar parabolic phase just like silver. The only things that haven’t joined the parties are the miners.

    Let’s say that gold continues its parabolic trajectory, then I’m guessing that the following may happen:
    1. Gold tops out at around $1680.
    2. Silver tops out at around $56 to $59.
    3. Miners (GDX) tops out at around $67.5.
    The time-frame is probably within 2 weeks, until May 16th or so.

    After silver mini-bubble crashes, my correction targets are
    1. Silver may crash to $30, with $22 as my lower target.
    2. Gold drops to $1250, with $1150 as my lower target.
    3. Miners drop to $51.
    Silver will enter its zig-zag Elliot wave 4 of bull market. The trading range will be from $30 to $60 for probably about 1.5 years or more to shake out both bulls & bears. In the meantime, I am guessing that miners will take lead the next phase in this PM bull market, with gold prices go to new high from about $1600 to $1850.

    If the gold price doesn’t do a parabolic top, which seems to be more likely to me, then I’m guessing that the following may happen:
    1. Gold tops out at $1600.
    2. Silver tops out at $52 to $53.
    3. Miners tops out just below $64.
    The time-frame is possibly before next Tuesday or Wednesday.

    After silver mini-bubble crashes, my correction targets are
    1. Silver may go down to $30 to $34, with $25 as my lower target.
    2. Gold drops to $1250 to $1300, with $1150 as my lower target.
    3. Miners drop to $54, with $51 as my lower target.

    Have fun poking the bubble! Don’t get the soapy water splashed onto your face.

    Frugal at

    Posted in Gold/Silver | 2 Comments »

    Gold/silver may have a correction coming

    Posted by Frugal on 20th April 2011

    Gold has broken $1500, and silver is almost at $45. While the rally in silver has been more than amazing, the rally in gold is quite within its normal trading range.

    I have been reading Cara’s trading blog at, and Bob Hoye’s podcast on every Friday. I am aware that rally of silver should be “exhausted” long time ago, but one needs to have his own opinion. The latest exhaustion signal from Bob Hoye should be at the end of this week at the latest. However, I think the market may be exuberant slightly longer than that.

    Gold/silver have a tendency to make a parabolic top. In fact, I almost want to say that without a parabolic top, it is simply not a top. I would never go short on this market (or at least not yet). At every market, one must decide on the bias (bullish or bearish) first, and then only move between cash & long/short (depending on the bias). I think those advertisement about swing trading that goes between long/short is really a myth. For most normal human traders, that is just a fast ticket to poverty, not to the riches.

    The next correction in silver & precious metal mining stocks may be quite big. I think a minimum of 20% is almost definitely in the cards. I wouldn’t rule out a 30+% fall. However, the fall will be respected to the peak prices, and we still don’t know what the peak prices will be achieved. I am looking for silver to possibly fall to low $30 range. Based on the ratio of the last rally (from $17.35 to $31.21), and the start of the current rally from $26.38, I think it’s possible for silver to go to $47.45. If silver price exceeds $47.45, then I think the coming correction may be more extended in time to wash out the excess in bullishness. I think $50 is possible, but I am not counting on it.

    While silver is very extended, mining stocks in general are not. I would think that the correction in mining stocks would be less than silver, but I could be wrong. I would be looking for GDX to pull back to low 50 at the maximum.

    For gold, I think the pullback could be from $1150 to $1250. I would deploy my capital starting at around $1250. I know all the shorts out there think that gold/silver are in the final stage of bubble. But I believe the next wave is the 2nd minor wave of 3rd major wave. Yes, it’s going to be painful when it falls, but when we reach 3rd of 3rd major wave, it’s when majority of shorts are literally destroyed. Frankly, I don’t know why anyone wants to be short in this market. For the sake of your own wealth, please don’t. But if you’d like to add to my wealth, you could go ahead.

    The other phenomenon that I see is that between gold/silver/mining stocks, the sync of waves has been somewhat broken. You will never see this at the final top. At the final final top, all of them should be synced up together to the top, with very small time lag. However, currently only silver is acting crazy. Given that, I’m also quite confident to state that this is simply not the final top.

    I wrote an investment advice series back in 2006, advising people to buy silver Eagle and Warren Buffet’s company(BRKB). If you had followed my advice, you would have returned 260% on your silver, and 31% on BRKB since August of 2006.

    Here are the entire series of My Investing Advice. The series is also listed on my Site Map at the upper left corner of every page on my site.

    1. My investing advice if you only have $10
    2. My investing advice if you only have $100
    3. My investing advice if you have $1000 to $10K
    4. My investing advice if you have $10K to $100K
    5. My investing advice if you have $100K to $1M

    Best luck, Frugal at

    Posted in Gold/Silver | 1 Comment »

    Silver at a fresh new high, and in backwardation – COMEX default?

    Posted by Frugal on 18th February 2011

    Check out the two articles:

    50% raise in margin requirement, and silver broke new high?!!

    Why shouldn’t silver/gold be in backwardation? The reason is very simple (but many people don’t understand and deny it). The fact is both gold & silver have always been real MONEY in human history. Why would ever $10K cash up-front more expensive than $10K cash three or six months later from now, considering these kind of “cash” will never yield interest money? Three or six months from now, the same cold metals will stay as the same amount of cold metals. The only possible way for silver/gold to trade in backwardation in futures market is that they (COMEX) just DON’T have all the “cash” on hand.

    There are about 60,000 open contracts into the March delivery date, and that is about 3X of the COMEX inventory on-hand.

    Somebody will milk COMEX for extra premium in rolling over to the next delivery date, and I bet COMEX will demand a non-disclosure statement, but they won’t be able to get that from Sprott for sure.

    Posted in Gold/Silver | Comments Off

    Outlook for precious metals

    Posted by Frugal on 7th February 2011

    My best guess is that precious metals have made a short term bottom. But I can be wrong. Intermediate term however I am still wary of a mid-year dip. A bull market often tries to shake off as many people before embarking a big advance.

    Both gold & silver have made the MACD bullish crossover on the daily chart. GDX & GDXJ have both made the crossover by just about a couple of days earlier. The upturn has been quite sharp, and is subjected to sharp pullback. It’s going to take a lot more work to get this market back to bullish stand.

    Based on my reading of the Elliot Wave Theory applying to gold & mining stocks, I believe that we should definitely be in major wave 3. Initially, I thought the 5 of 1 of 3rd major wave would be here. After the recent correction, I’m not sure if 2 of the 3rd major wave has begun. The second wave down is usually the most painful. GDX correct some 70% in its 2nd major wave in 2008/2009. Therefore, I would be cautious about the 2nd wave of the 3rd major Elliot wave too. The other disturbing trend for mining stocks is that oil prices are going up fast if not faster than gold. The gold to oil ratio must be carefully watched to decide on whether to over-weigh precious metal mining or oil drilling stocks.

    I have been extremely busy with my day job & investment for the last month. Inevitably my blog suffers. After all, I’ve got only 24 hours a day. I’m going to make an effort to blog more regularly. Hope that my work schedule won’t get overwhelmingly busy again.

    Posted in Gold/Silver | Comments Off

    MW comments on bearish articles on Gold

    Posted by Frugal on 16th November 2010

    I’m always interested in finding out exactly how big is the public participation on the precious metal investment. Here is just some status check:

    1. A few months ago, my relative who laughed at me before about buying the “barbaric” metals asked me how high can the gold goes, because he/she is thinking of buying it.

    2. A few months ago, my friend seriously considered buying metals.

    3. Another relative finally bought metals, but sold again recently.

    4. A trip to Home Depot last week turns out to be an education. While I was selecting repair parts, a person behind me was explaining to his friend that QE2 by Federal Reserve will create inflation, and one needs to buy precious metals, because the more hot money out there, the higher price gold will go. (Yeah, I thought that was quite obvious, but his friend was quite illiterate about financial matters.)

    5. I’ve spent hours reading through the comments on the recent bearish article “Why gold is a bad investment” at The comments were almost totally one-sided, blasting the author, and any other gold bears who decide to comment. I don’t know whether the readers of are much more financially-savvy. But definitely a very significant public participation is going on in this gold market, based on all the comments.

    To wrap this up, here is what I had to say to another fellow at

    To AmericanPatriot,
    Because I added you as a friend in the past, for your benefit, I hope you are not shorting gold or gold-related investment. I don’t want to elaborate my reasons, but a bubble by definition NEEDs to be parabolic. The parabolic rise won’t come until closer to the very end, when it’s visually obvious. However, the abrupt end to the parabolic rise is usually anytime, and anybody’s guess.

    The intermediate correction in gold will come later. I think we have a short-term correction right now. Don’t fight the tape. Some of the people who shorted into dot-com bubble lost all of their savings. I was shorting too in early 2000. Knowing that it was an imminently bursting bubble didn’t make me any money. I learned my hard lesson about how the irrational exuberance can last longer than one’s insolvency.

    Best luck.

    By the way, do yourself a favor. DO NOT listen to Jon Nadler at Kitco. He is a double-talking double agent possibly “planted” by the investment banking world. You would think that at Kitco, you want somebody who is a perma-bull like Lawrence Yu in National Real Estate. For some reason, he is always the first guy who pours cold water on gold.

    In any case, always remember that if you try to get rich overnight, you can also lose double of the amount in less time. Nothing goes straight up. Likewise, nothing goes straight down too (but sometimes, it does happen too in a black-swan dive).

    Posted in Gold/Silver | 4 Comments »

    Gold going vertical again!

    Posted by Frugal on 13th October 2010

    There seems to be a short squeeze in precious metal market. It looks like it’s going to go a bit higher. I actually sold some, and then get back into the market again.

    So what’s going on with QE2? Since the news won’t be out until Nov 2/3 (the next Fed meeting), potentially the rally could keep going until that time. My guess is that it would be the “buy on rumor, sell on news” deal. Just a brief check for the health on this market:
    1. Gold at new high!
    2. Silver at new high (not yet breaking historical high), AND leading in terms of percentage gain.
    3. GDX at new high!
    4. GDXJ at new high, AND still leading in terms of percentage gain.

    It appears that GDXJ/Silver are still forecasting higher prices to come. Now, it’s investor’s heaven, after suffering thru 2 years of big dip, and coming back to some 6% gain (58.5 / 55). That was the wave 2 in HUI. Now, of course, by extension, you would know what’s ahead in wave 3 according to Elliot wave. Don’t get shaken out! Actually, I will believe in wave 3 until I see it. HUI has been one of the most treacherous index ever. I just cannot believe how many times I’ve got cheated on the false breakouts. Regardless, I’m betting my money on a real breakout. Furthermore, I’m preparing to “back up the truck and load up”.

    The performance of gold is quite lackluster relative to BIDU or AAPL. But there is a season for everything, and “apples” do fall from the tree. I may pick some up, but it’s just not time yet.

    Posted in Gold/Silver | 3 Comments »

    The “fair price” for gold

    Posted by Frugal on 9th September 2010

    “Gold closed at new high!” That was the Tuesday headline on I checked right away, but didn’t see gold cash price breaking new high at $1265. After reading the article, it’s really just a new high in the nearest futures market.

    “Investing” in gold is probably one of the hardest arguments to make, since gold simply doesn’t generate any interests nor dividends. Plus that many people who are interested in the commodity market will try to make the argument that nobody needs gold to survive. On the other hand, we all need oil/energy & grains. However, that simply doesn’t matter much for the last 10 years for gold investment. After all, everybody sells his or her investment at the end (whether it’s before or after death), and the only thing that matters is whether you are able to buy low and sell high.

    After observing this market for almost 8 years myself since my initial investment back in 2002/2003, I can clearly see that the character of this market is slowly changing from stage 1 to stage 2, with more new participants coming in. Based on my judgment, it’s probably not at the mid-point of stage 2 yet. However, the price has probably reached slightly more than what its “fair price” should be. My definition of “fair price” probably will upset both gold bulls & bears. For the perma-bulls, gold should be trading at above $2200, an inflation-adjusted price from last peak set back in 1980 at about $850. For the perma-bears, gold at any price is probably too high, especially its historical record of hedging against inflation from 1980 to the low of about $250 in 1999/2001 is simply ridiculous (and that is definitely true). I take the middle ground, and would use $400 and adjust it by inflation for the last 20 years, and I would get just $1085.

    Why do I use an ad-hoc $400 instead of $850? Peak prices (of $850) are crazy prices. They are always outliers. They do not make sense. A little less than half of the peak prices based on the trading around the peak of $850 before & after 1980 appears to make more sense to me.

    I also believe that the inflation-hedging power for gold is valid, but it needs to be judged from a very very long term (way beyond 20 years from 1980 to 2000), just like the argument for housing prices always go up or stock prices always go up in the long term. In fact, all of them (gold/house/stock) do go up in the long term, but the only problem is that we humans only live for about 100 years, out of which we may earn & accumulate for some 40 years, and invest for just 20/30 years at best. The true “long-term” (in the order of 100 years) is simply too long for us. That makes all the differences in the whole world when it comes to “investment”. Depending on the era that we were born, we may or may not enjoy the prosperity at our respective ages.

    So is today’s gold price too expensive? Based on all short-term technical indications, I think gold will soon come to a short-term top, possibly exceeding the last high. For the timeframe, I would say probably give or take 1 to 2 weeks. My own actions in this market have been mostly neutral. Try to buy the next dip if you can catch the break. Think of saving away in terms of GLD/SGOL or better yet in physical gold (so that your gold won’t shrink in size due to ETF fee). Such saving definitely won’t make you rich overnight, but at least you should be able to preserve your wealth.

    Posted in Gold/Silver | 2 Comments »

    Gold breaks record price (again and again)!

    Posted by Frugal on 12th May 2010

    There may be a short-term top after this, but not before setting more new record prices.

    Again and again. That is the pattern of a solid bull market in progress. Yeah, I managed to invest 24% of my cash since the year starts, but my conservative investing approach has let a big sideline cash position at 26% of my total net worth. My cash position has been dwindling percentage-wise lately, mainly due to the increase in my other invested assets, not because I have put my cash into good use.

    I don’t chase prices into record high, but let me kindly remind you that in a bull market, what one should do is to follow Kelly’s criterion, and take some measured risks according to the price.

    One of the biggest investment mistakes that I kept making is that I don’t listen to myself more often. Instead I subscribed to newsletters such as Jack Chan’s, and continue to hold myself back too much (on cash). There are intuitions & emotions. The successful trader can distinguish the two, and make proper decisions.

    There is a time for everything. And I know instinctively that this year would be a big year for me. I hope that you will be on the ride too. There may be 1 more good chance if you & I are lucky, but if not, I’m properly positioned.

    If there is any investing secrets of mine, here it is (mainly due to lack of time to trade more often):
    1. Pick the right “train”, and hold on to it for your dear life on this scary ride.
    2. Eventually IF you’re successful in your pick, everybody would want to get on, and that’s the time you should get off.
    3. Repeat the same successful process, but with a different vehicle.

    Posted in Gold/Silver | 2 Comments »