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.

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.

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 www.1stMillionAt33.com

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 caracommunity.com, and Bob Hoye’s podcast on Howestreet.com 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 1stMillionAt33.com

Check out the two articles:

http://www.zerohedge.com/article/if-cme-hikes-gold-and-silver-margins-50-and-nobody-cared-did-tree-fall-central-banking-pm-pr

http://tfmetalsreport.blogspot.com/2011/02/wow.html

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.

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.

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 Marketwatch.com. 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 MarketWatch.com 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 MarketWatch.com:

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).

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.

“Gold closed at new high!” That was the Tuesday headline on Marketwatch.com. 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.

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 SimplyProfits.org, 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.

Gold just made a new high at $1217 today. I believe that it can easily go to $1300, and possibly touching $1400 before pulling back. BUT it can also easily fall back to $1080.

The bottomline is that I don’t know whether it will go up or go down tomorrow. But nobody else knows either for sure. However, recognizing your own ignorance is often better than being the best trader in the world to try to catch the lowest point and cash out at the highest point. This strategy is especially powerful in a true bull market like gold.

As I have explained in my post on Kelly’s Criterion for investing, such strategy is very well suited for an asset class that is in a bull market. Simply buy more when it falls, and buy less when it goes up. This strategy goes counter to a traders’ mind, of cutting your losses early, and placing stop orders. And as I have also said in my post that such strategy WILL bring extreme volatility beyond the tolerance of most people. The obvious risk for such strategy is that one must ascertain the validity of such a bull market.

It is clear to me that gold & mining stocks are in a major Elliot wave 3. I don’t know whether this is wave 1 of wave 3 (which I’m leaning towards), or wave 3 of wave3, but either of the up waves should be quite strong.

So the train is leaving the station. Are you on or not?

GDXJ was debut this Wednesday. Both GDX and GDXJ (the junior companies) are offered by Van Eck.

Here are the links to the company site for GDX and GDXJ. The complete weighting of the components are listed below:

GDX is a tracking ETF to GDM index, a mining index determined by Nyse. The component weighting cannot be determined by Van Eck. Unfortunately, the top holding ABX at 14.5% is probably one of the worst choice. ABX recently announced to dehedge its gold forward sale, which was costing ABX some 4 billion dollars. ABX is also rumored to be the accomplice of gold suppression scheme together with JPM & Fed. The other components in GDX that I don’t like are AU at 5.62%, GFI at 4.25%, HMY at 3.24%, all are deriving 100% or significant gold productions in Africa. As the gold prices zoom upward, mining gold in an impoverished (relatively speaking) continent will tend to be problematic. I expect more labor and theft and political problems. Also gold production from Africa is declining as a whole. With the exception of GFI, which has expanded its production to other continents, the other two companies are definitely not my preferred choice (especially HMY). GFI is probably the “cheapest” company among major gold producers that one can buy, since its mine life is still quite long. HMY may have the highest leverage to gold price, due to its very high cost basis. At later stages of gold bull market, HMY could easily come back with a vengeance despite the terrible management. Although one may consider shorting out those components when owning GDX, I hesitate to do that. The other company that derive its production from Africa is RangGold (GOLD) at 4.72%. This has been one of the company that has baffled me, easily outperforming all other components, without me owning it. Definitely one should not short this component out.

Onto the new GDXJ, top components (CDE, SSRI, HL, SVM) are taken by all silver mining companies instead of gold mining companies. That’s 21% of the GDXJ. My ongoing concern about investing in silver companies is that they will couple to the general stock market a lot more than gold mining companies (at least initially). In a deflation, gold/silver ratio will zoom upward, relatively depressing the price of silver. I would have hoped to have less silver components. By the way, junior companies or small-cap stocks also tend to get depressed more in a downwave. Regardless, CDE and HL (and MFN) don’t seem to have good management in shareholders’ interests, raising big amount of capital at the recent zenith of 2008/2009, diluting a big percentage of their stockholders. I suspect that the deals were hammered out with hedge funds in the Wallstreet who have shorted all these companies in the backroom. With a big short ratio, it was simply not possible to cover those short position via open market purchases without driving up the stock prices. And what is the chance of having so many companies silmultaneously raising capital all the the absolute zenith of the stock market?

Most of the rest of the GDXJ components beyond top ten are not familiar to me. And that is the beauty of investing in an ETF, not needing to know every individual company. Assuming that gold bull market continues, GDXJ will eventually outperform GDX, with much higher volatility. I expect the rallies in both will be kind of in stages, with GDX the big cap leading the way.

Both gold & mining companies are short-term overbought, and had a tremendous recovery since 2008 crash. Based on Elliot wave reading, I’m fairly certain that we are looking at major wave 3. It is hard to tell whether wave 2 of 3 has happened or not. Regardless, if you have the nerves to buy and the stomach to ride out the tremendous volatility (20% to 50% up and down probably for more than 4 times per year), I think the reward may be good.

Granted, I’m still holding back due to my expectation of a significant general stock market correction in Q1/Q2 next year. But no one can predict the stock market with certainty. The best thing to do is to pick and weigh each of your portfolio position carefully, and stand firmly to ride out the combined volatility.

Frugal at 1stMillionAt33.com

Rob Kirby has recently alerted people at financialsense.com for the possibility of missing gold bars at GLD. Here is what he said:

An alert reader I communicate with [who shall remain anonymous] has been documenting the length of the published GLD bar list:

Something TRULY stinks here. No explanation has been offered for the DRAMATIC swings in this list. Where gold is concerned nothing happens by accident.

Such anomaly if it’s true would be totally outrageous. Before going into total panic, obviously one should do the due diligence first. Therefore, I spent a couple of weeks observing the gold bar list at the GLD, which can be downloaded right here from spdrgoldshares.com. I was able to obtain 2 different copies of GLD bar list. One is 855 pages long, and another is 1291 pages long, both of which can be downloaded from my site by clicking on the links.

The first thing that I noticed was that on the 855 page version, it is attributing to Bank of New York, while the 1291 page version, it is stating the rightful new owner as HSBC. This seems to be extreme slopiness on the part of GLD. Yes, HSBC has bought the ETF, but it has been quite awhile (I couldn’t google a link to verify the above, but only recalled reading GLD being bought out by the new owner.) Anyway, I don’t think anybody would make such a mistake in title regarding one’s own assets.

The second thing is obviously that the two versions did confirm what Rob Kirby said about very different length in the bar list itself. I was not able to get the versions with much shorter list. I tried Internet Archive Wayback Machine, and it didn’t have any archives for the bar list link. So I guess any archiving for observation will need to be done by oneself.

Once I begun to actually count the number of gold bars, it became clear to me that the page length has nothing to do with the number of bars. On the 855 page version, there are about 104 bars per page, while on the 1291 page version, there are about 69 bars per page. That makes the total number of bars to come out to be roughly the same or consistent with the number of bars stated in both documents.

Because of the minor differences that I still couldn’t reconcile by manual counting & estimation, I decided to write a short program (which can be downloaded here, requring a Unix system to parse) to actually go thru the entire document and count the number of bars, while also checking for possible duplication entries in the table. By the way, if anyone wants to know how to run this program, just send me an email.

Well, to no one’s surprises, the number of bars, gross weight and actual number of gold ounces are EXACTLY the same as stated in the documents. There is NO missing gold bars! BUT there are some 5000 duplicated bar entries (here is the duplicated list for the 1291 page version)!! I manually checked a few entries (such as 100341 JOHNSON MATTHEY, 813 NAVOI MINING, AA22338 JOHNSON MATTHEY) dumped out from my program, and they are indeed correctly duplicated. Besides, since my program verified the number of bars and ounces exactly, I think programming errors on my part is very low.

Then I googled the internet a little bit more. I found out that the problem of duplicated entries have been found before, and they were caused by not listing the complete bar number in the document. For example, Johnson Matthey before used two letter to encode the year of fabrication before year 2002. Therefore, the duplicated bar entries are only in the text, but not in vault.
Although I still felt that statistically having 5037 duplicated bar numbers out of 88941 bars or 5.7% is abnormally high to me, at least there is some plausible explanation.

From the investigation on the different length of the two GLD documents, I must conclude that the two other versions of 208 and 195 pages are more likely to be human errors. In fact, I believe that the same person Rob Kirby referred to on the Yahoo message board has posted and corrected his own extraction error in this very later post “Re: Barlist Missing 65,497 bars”:

….My earlier numbers reflected an issue with correct extraction…..

In fact, if there is any fraud or theft in GLD, I just don’t think that GLD owner will commit such big blunder of revealing it in a such stupid way. It will have to be more subtle and elaborate than this.

I personally like to read whatever Rob Kirby has to say. But like everything you read on internet, you should always take it with a grain of salt, making sure you have filtered out the dis-information from information. For example, on Kirby’s previous post claiming big physical transactions in gold at the end of September in gold futures market, I simply cannot find this trace of physical delivery in any of the reported futures market. That is not to say that it is not possible, but just that I cannot trust such information with certainty.

Despite the finding from my personal investigation, I will still not hold GLD, due to problematic custodian structures. In fact, if anyone doesn’t want to buy physical or too much of it, one should simply diversify the physical gold holding in various gold/silver physical ETFs: GLD, GTU, SGOL, CEF, SIVR, SLV, etc. This way in case one of the ETFs in the unlikely scenario of actual theft or confiscation by government, you will still be left with majority of your holdings intact (in paper money at least). It will certainly increase your transaction costs, but at least it’s far better to let an unpredictable future event to hit your financial well being. And I also want to add that nothing can beat physical gold/silver, because in the time of crisis (and heavy demand), there is always an added premium which is not available in the paper market.

Frugal at 1stMillionAt33.com

Gold broke all time record in $US today. It is a confirmation that the bull market is alive.

Some people could argue that this may be a double top. That is definitely possible. However, if gold does get up to more than $1100, then I think that argument is a little weak. Furthermore, based on the recent consolidation of gold prices, it just doesn’t look like it’s a double top formation. A double top usually falls sharply afterwards. Gold consolidation has been quite flat, indicating its continual strength.

In fact, gold has indeed climbed a giant wall of worry. Majority of gold investors have not put in more money because of fear in impending stock market correction.

I have no way to know whether the gold mining index HUI is making a small double top right here. It is certainly possible. But I try not to predict the short term moves too much. After all, it’s not easy to out-smart the markets on a daily basis.

I understand that the great trader Bill at BillCara.com has sold partially out from stock markets & gold/mining. I also know that JC, one of the very few successful traders amid 2008 stock market crash at www.simplyprofits.org have gone out of markets for quite a while. I understand that the person who called the credit market crash in 2007, Bob Hoye (normally at HoweStreet.com), has turned bearish on general stock markets, and especially on silver, for a number of months. But I kept thinking to myself that in this wave 3 up, most people/traders will be missing the bull ride. Ha, ha, myself included!!

The next big milestone if it comes will be a new high in international currency, first in Euro, and then in commodity currencies. I continue to believe that this new high will NOT come until the next big fall in the financial sector happens, which may be next March/April. From that regard, at least, for the international investors, they probably still have time to digest the current volatility in gold market. However, I wonder whether there may be some fireworks first when priced in $US before the year ends. Yeah, I know $US is supposed to rally right here right now. But is this another episode of “markets stay irrationally longer than one can stay solvent”?

Next Friday is an option expiration week. Maybe there is a chance of pullback. Maybe BillCara & Bob Hoye is right. I dare not to go in nor go out of this market. Brave trader I’m not. Patient investor I am, and I need to take actions accordingly.

Best luck,

Frugal at 1stMillionAt33.com

HongKong is going to keep its own gold in the newly built vault. When the party that keeps your “money” (in gold) can be insolvent, there is no guarantee that you will get your “money” back. I don’t know whether this news has anything to do with the two days of the vertical rise in precious metal & mining stocks.

The best way to buy gold is simply buying physical gold, and keep them yourself. Such process can be dangerous and susceptible to theft, but in my opinion, it is far better to have these banking thieves and liars taking possession of your gold. The same is true for silver.

I have looked over the prospectus for GLD, SLV, SIVR. There is also an upcoming SGOL to compete against GLD. All of the prospectus have extremely limited legal rights for your purchased shares in their trust. Most of the time, your legal rights stop at the Trustee. Trustee can deal with Custodian, but not sub-custodians who may keep your gold/silver. It is extremely difficult legally to recover your gold/silver through layers of legal non-protections down to sub-custodians. And guess what, at every level, from Trustee, Custodian, down to Sub-custodians, all of them are big banks which can become insolvent in the event of derivative crisis.

The primary reason to buy gold/silver is to have “insurance” against financial calamity. Leaving your gold/silver to these big banks who have recently gone to the brink of failures defeats the sole purpose of buying gold/silver. You won’t know who may go belly up, shorting nakedly in gold/silver futures, until some bank really fails.

If you believe in Bible, what kind of investment choices should you make? One of the most mysterious chapters in Bible is the Revelation which predicts the end time. The most interesting part I would have to say are the seven seals. When I first read them, some were kind of clear, indicating wars and plagues. Some were not so clear at all, like the third seal (Revelation 6:6):
“A measure of wheat for a penny; and three measures of barley for a penny; and see thou hurt not the oil and the wine.” (King James Version)

My first reaction was what does that mean?? A penny? I learned much later what the penny means in Bible. Some versions use a shilling or (the Roman) denarius which is essentially a silver coin about the size of a dime, or about the wage of one day work (Matthew:20:2) at the time when Bible was written. In the New International Version, this is what it states for the same Revelation passage:
“A quart of wheat for a day’s wages, and three quarts of barley for a day’s wages, and do not damage the oil and the wine!”

Once you understand the units, it is more clear. First of all, silver which was the monetary unit was worth much more in ancient time, compared to our modern time. If we use an hourly (federal) minimum wage of US$6.55, and 8 hours a day, that will be $52.4, or about 3.75 one-ounce (28.35 gram) silver coins (at US$14) or about 23.5 denarius (4.5 gram of silver content). We are earning 24X in silver than ancient workers. So either it means that silver is vastly undervalued, or our wages are so much better valued than ancient workers. I’m guessing it’s probably somewhere in between, especially silver is no longer used as monetary units.

Secondly, the other part is that the wage of one entire day can only buy you very little amount of wheat or barley, barely enough to satisfy one man’s hunger. It is obvious that it means at the minimum that there is a great food inflation, if not inflation in general. However, it’s basically impossible to only have food inflation. Food is the most essential commodity. Food inflation will drive all other inflations.

As I contemplate what Bible means for the current global economic pictures, it is also important to note that United States is a predominantly Christian country. I think those scenarios if it comes unfolding could apply to US more than other countries through a US dollar depreciation.

We are obviously not through the current phase of economic deflation possibly until 2012. However, the next phase of great inflation is probably just around the corner. Keep the goal in sight.

I have been asked by several people (mostly females), my wife and my mother-in-law included, that if gold/silver is a good investment, then diamonds must also be a good investment. And my answer is always an emphatic NO!

Yes, diamonds are very precious in the sense that they are probably one of the most expensive items per weight, much much more expensive than gold indeed. However, the value of an item is always subjective according to the observers. The value of diamonds and the sale of all kinds of jewelry go up in peace and economically prosperous time. However, they tend to go down in economic distress. In fact, in respect to investment, diamonds function more like investment in art works. The value of arts go up in a stock market boom, and they go down when stocks go down. In fact, artwork boom is the last indicator for a stock market making its final top back in 2007.

Why the big difference? The people buying diamonds thinking that they are buying into same class of investment as gold/silver do not understand what money means. One of the most important criteria for gold/silver being used as money historically is because of the divisibility of gold/silver metals. Been able to divide gold/silver into smaller pieces easily and still retain exactly the same value when summing back up is extremely important to function as money. Can you divide your 1 carat diamond into 0.5 carat diamonds and still get the same total for the values of the two pieces of diamonds? NO! Because 1 carat diamond is much more rare than 0.5 carat diamond. The price of rarity is higher in the eyes of beholders. Because of that, diamonds can never function like investment in gold & silver.

So if you like to buy diamonds, fine, just buy them. But don’t kid yourself into thinking that their value will go up along with gold/silver. In fact, the opposite is more likely to be true. Gold usually outperforms in a wild inflation and also deflation. Silver tends to under-perform gold, until the last final stage of gold bull market. Diamonds on the other hand will only perform in an inflationary environment, not in a deflationary environment, simply because diamonds are not money.

One of my colleagues have repeatedly asked me this question. I am quite clearly on the answer, “NO”.

How many people do you know who actually hold GLD? How many people do you know actually buying gold? How many people do you know actually buy mining shares? The answer all too often is close to zero.

A bubble is ALWAYS easily recognizable (unlike the shameful Greenspan who claims that it can only be seen hindsight). The participation rate will be quite high that you are bound to hear about it in news REPEATEDLY, and that it will be always the “topic of the party”. A bubble is a collective ignorance or rather frenzy, and there is always a disconnect to reality.

In fact, gold is looking extremely good technically, forming the bottom of the cup in a cup & handle chart. The next rising up is usually pretty substantial.

At $1000 just a month ago, the gold bull is faithfully shaking off the Indian and Arabic participants. However, the Asian will be piling in due to competitive devaluations of their own currency. Asians have always recognized both gold/silver as the money. They will never hesitate to protect their own wealth in the real money.

So are you onboard?

Unfortunately, for the smaller investors, physical gold is pretty much out of reach. With a minimum order of 20 ounces, that is about $20000. The only current buyers are from institutions and people who have money to put away. These are smart investors buying in, while the middle class is selling out their last portion of gold jewelry for cash. Who will be right?

The run-up in gold on last Friday is good for investors, but probably bad for traders.

Oil is at all time high, while gold has sustained a 15% correction. While it is still possible for gold to come back down to $820 to $850, gold is a good buy for longer term horizon. If one looks at the gold to oil ratio chart, the ratio is currently at an extreme value. Sooner or later the ratio is bound to rise up. If you believe in crude oil going up, then you should believe in gold prices going up more.

Here is the recent chart from stockcharts.com:

A chart from Incredible Charts shows how extreme the current ratio is.

In a credit crunch (which is not over yet) where deflation occurs, the value of money goes up. And I expect that the value of real money (gold) goes up even more.

From the ratio chart, one can probably safely say that in the intermediate term, it’s probably good to either buy gold and/or sell oil.

My trading model just triggered a buy signal on HUI index at the Thursday closing. Going all the way back to 1996, this signal is only right about 60% of the time, but has performed well through the bear market from 1996 to 2001, and the bull market from 2001 till now.

But I still hesitate to take further positions. I don’t know whether the model is correct, or Bob Hoye is correct. I would be comfortable buying if gold makes a low at or below $850, with HUI going all the way down at 370 to 400 (or below). The current correction seems to be a little shallow, and has simply not corrected the overbought technical indicators on the monthly readings.

But again, I also believe that we were in the Elliot wave 2 of 3. Supposedly the corrections are shallow in intermediate wave 3.

Trade on your own risk. Best luck.

Frugal at 1stMillionAt33.com

I can’t believe that it will take me many many thousands of dollars of loss to bury my head into my own mathematical trading model which has told me to sell. I only wish I can trade full time.

This gold correction is definitely going to last quite a while. I guess what’s most unexpected was the duration of this previous up wave, only a mere 7 months. Now the question is where gold is going to bottom. Assuming that the previous up wave is 1 of 3 in Elliot wave, I believe the “first” bottom for gold to bottom at about $850, and HUI to bottom at 400. Gold can possibly go down to as low as $760, dragging down the entire complex way down. If it goes to $750/$760, I believe the wave count should be 5 of 1 for the most recent peak.

And very likely, precious metals won’t go anywhere for the next 9 months. Yeah, we may not see $1000 again in 2008. It’s going to be dead money.

Where should you invest your money? As I have said last week, I believe the danger zone for stock market is probably over temporarily. Of course, my own opinion is different from Frank Barbera and Bill Cara. I don’t think stock markets will break new high at all, but I believe a new low in stock market is probably not going to be in this year. Yes, we have seen the low for this year I believe. But we might not have seen a lower low yet. It’s apocalypse postponed.

On the other hand, I also don’t believe that mining stocks will go as low as Bill Cara has described. Of course, it’s only my personal opinion, based on my own count of Elliot wave.

I have taken a little long position, and closed some of my short hedges yesterday.

I have not sold much of my long positions in precious metals. I guess one of my biggest problem is that I have too much cash, which prevented me to raise more cash by selling. My total cash position is now as big as my total liquid net worth when I just started my blog, which is mainly due to my leveraging on my primary residence (through refinancing), and my relatives’ cash. Since I think more in terms of asset allocation rather than trading, I don’t want to pile up more cash. That was my problem last time when gold peaked in 2006. And I am repeating my mistake again.

Nothing beats good trading (even a good asset allocation), but only if you can repeat it time after time. Certainly, it’s a little hard to asset allocate when my cash position grows so much. Unbelievably, I’m still 50+% in cash (if I count my SHY holding as cash). Of course, that’s not any comfort for my huge loss (relative to my annual salary) in precious metals sector.

P.S. Don’t buy into the stock markets today. It should be worth your money to wait for some financial companies to go thru their earnings before you buy into the general stock market. That will also give you more time to assess this market. Furthermore, I just don’t think this stock market is going to cruise to new high this year or the next. Bottomline, you shouldn’t miss a boatload of profits even if you don’t ride on this train.

Geez, that hurts (a lot). I should have acted according to my own mathematical model.

I really thought that PM markets were in the major wave 3 in Elliot wave. Now I’m not so sure. If the recent peak is the termination of major wave 1, there will be quite a long correction before PM. And that simply doesn’t bode well for anyone looking for a continuation of the bull market.

If the recent peak is wave 1 of major wave 3 (which was my initial count), or wave 3 of major wave 3 (which is the most straightforward count, but therefore cannot be true when it’s so easy), then the correction may last less than 2 to 9 months at the longest.

I just found out that US Mint suspended or put a long delay on silver Eagles because of lots of purchase order. That is certainly not good, since public or the crowd would probably invest in coins first. I’ve also kind of kept track of the tonnes held in GLD. Before the zoom up from $910 to $925, there were about 630 tonnes. After the swan dive, at Thursday closing, there were about 637 tonnes. At the peak, there were 663 tones. The first day, 15 tonnes were withdrew. The second day (yesterday), 11 tonnes were withdrew. Apparently, it was simply billions of hot money that went in and then went out.

So is this hot money from the public? Moving at such fast speed, the most likely source is from the speculators and hedge funds rather than long term investors.

I still think that the recent peak was probably more like wave 1 of the major wave 3. However, one cannot count out the possibility of wave 5 in major wave 1, in which case, you may see PM to correct and take out the over-boughtness on the monthly charts to the long-term moving average. That will be extremely ugly to say the least.

Can the gold bull market be finished right here? I think the chance is quite slim. But again one must be open-minded at all times.

I’m going to wait for my model to turn up again before making any new purchase. I just refined my model again, and added in the commission and a few more details. It is at least outperforming index by 3X, and if I add intraday tradings, it would outperform by close to 9X (although it’s probably lower because I didn’t have 1-minute data for calculating a correct return).

I guess I was just one week earlier exactly.

Yes, gold is quite high. But yes, we are also early in the wave 3 in the Elliot wave. I believe by Elliot wave count, we are in wave 1 of wave 3, and we can enter corrective wave 2 ANYTIME.

I’ve determined my wave counts based on sentiments which I believe to be more accurate than pure wave counting. The sentiment in wave 3 from Wikipedia is here:

Wave 3: Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to “get in on a pullback” will likely miss the boat. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three’s midpoint, “the crowd” will often join the new bullish trend. Wave three often extends wave one by a ratio of 1.618:1.

Indeed, some stories that I’ve heard can be scary. There are many reports of people selling their old jewelries, increasing scrap supplies. And there are many stories of people who finally made their first purchase of gold in the $900s. But it’s in the middle of wave three, where the crowd will start to be right, meaning that people taking contrarian viewpoints will be wrong.

I will write in more details on how I reached my conclusion on the wave counts. But the bottomline is that by such wave counts, it is obvious that this gold bull market is going to last much longer than any of the “wallstreet analysts” expect.

Back on October 13, 2007, when I tried to address Wharton’s article on “Financial Innovations: A Double-Edged Sword” via BillCara’s blog, I left the following comment on his site (back in October 2007):

Wharton’s article has touched most of the important topics related to financial innovative products. There are three other things that are not addressed however:
1. Counter-party risk: the solvency of the counter-party must be considered and must be evaluated under some three-sigma events. When the tsunami comes, you don’t want to be right but still be left with the baggage from your counter-party.

2. Cross-correlation of the financial instruments: this needs to be addressed for your own portfolio and your counter-party’s portfolio if possible. The correlation and its potential variation range must be carefully considered. Using efficient frontier, one can potentially absorb high volatility and balance it (through some other negatively correlated instrument) in an entire portfolio.

3. Market efficiency: The risk of a financial product is always proportional to the return. Even if there is a temporary market inefficiency that allows one to arbitrage, such inefficiency (and therefore opportunity) is bound to disappear as the capital that participates in such opportunity expands dramatically. Such process of exploiting market inefficiency is itself making the market efficient again. So no matter how innovative the financial instruments or strategies are, one should not delude oneself into thinking that such edge can last forever.

I put counter-party risk as the most important thing. Obviously, now with Ambak and MBIA monoline insurance companies effectively bankrupt, you would have to wonder how these “prestigious” bankers and financial engineers compared to someone (me) who only took a single macro-economic class for ALL of his economics/finance training.

Well, #2 is to address over-concentration in your own portfolio and also in combination of your counter-party. This is going to be a serious problem for all banks going forward, since most of them are highly concentrated in real estate loans, whose performance is highly correlated to all sorts of credit instruments including commercial real estate loans, corporate bonds, and municipal bonds.

#3 is obviously where all the greedy wallstreet/hedge fund people have failed to even consider. The total amount of real estate loans is simply too big for a potentially safe arbitrage of interest rates between the short and long term bonds. Well, yes, certainly that short term bonds almost always pay less interest on the long term bonds. But with too many people leveraged up 10X or 20X doing the same trade, the efficient market is bound to give you a zero, if not negative return.

Now of course, the reason that I bring up these comments again is that they don’t just apply to subprime loans but to all things financial. The reason for buying physical gold and silver instead of through ETF is exactly due to #1. I’ve looked into GLD, and it seemed to be pretty safe (especially with the gold bar serial number provided). However, the same thing cannot be said for SLV, the silver ETF, which is an even thinly capitalized market. Possibly one day down the road, SLV will trade at a hefty discount to the actual silver spot price, due to counter-party blowup. The the party that’s going to be in trouble is most likely the guys with the biggest derivative books: Citibank and JP Morgan.

I don’t know how Citibank in the future will be, but it has fallen two thirds of its value, and still falling, and it still needs cash infusion. All the big banks and brokerage houses have been simply too greedy and too confident. If you simply look at their account books on Yahoo, all of them (such as Goldman Sachs, Citibank, JP Morgan) are leveraged to hilt, with LOTS of borrowed cash on their book. The total amount of cash is close to a trillion. Now, for example in Citibank, when significant percentage of the portfolio is betting on the same thing: mortgages, then everything easily come crashing down.

Financial leverage always works both ways: up and also down. In a highly leveraged portfolio, it is usually difficult if not impossible to prevent three-sigma events when sufficient number of things come crashing down. Such long term leveraged bets can only rely upon continual expansion of the credit market in saving their ass. Unfortunately, it appears that 2007 is the peak year for credit markets, which won’t recover anytime soon.

Obviously with gold price closer to $1000 than $900, if my prediction comes true, you or I shouldn’t be surprised. The best future price prediction is always the current price or whatever prices that are closer.

I think what’s going to be surprising to most market participants (myself included) is that gold may break $1000 without any “expected” pullback or fanfare. If that’s the case, it should be very bullish.

What does that mean? It would mean that the most bulls are afraid of adding more money, and the bears are nowhere to be seen. When the majority of the participants are afraid of buying, then market will probably disappoint the majority (myself included again).

Gush, I’ve got so much useless $US that I simply hate myself for not being more aggressive.

But again, this market is truly closer to a short-term top than to the short-term bottom. Near the top, great volatility is expected, and that’s exactly what we are seeing in both spot market and mining shares. Volatility is always a good indicator for a changing trend. It simply means that some smart money is getting ahead of itself.

Look at previous top in the stock market. How many big oscillations before it actually fell. Not counting the February peak, I counted 3 major upwaves, and 4 minor oscillations. That should be the nature of a major top. Granted, the coming PM top is going to be a minor PM top, so possibly it won’t be a top that is as complicated as the one happened in stock markets.

Here are my targets for the next PM top:

gold at $1130.
silver at $26.
HUI at 573.
XAU at 230.
GDX at 62.

I will reveal how I reach these numbers, but frankly, whether I arrive these numbers by the best technical analysis or exotic nonlinear mathematics, it doesn’t really matter. It’s not like if I can elaborate very well about these numbers, my “theories” will have validities. No one can ever predict the markets with very high accuracies. They are just a guess from me. And your guess can easily be better than mine.

If the intermediate trend reverses right about here, then here are my downside targets:

gold at $800.
silver at $16.
HUI at 400.
XAU at 160.
GDX at 43.5.

Obviously, if you get the direction incorrect, you will be looking at big losses.

I do NOT recommend getting into PM right now. It can FALL anytime.

Good luck trading.

Frugal at 1stMillionAt33.com

HUI made a new closing high of 485.9 today, besting the 480.99 mark set in January. The intraday high of 491.58 was also a record. With this new high, it is almost certain that we are in the middle of wave (3) of iii of 3 of III, first suggested here. In Elliott wave jargon, wave 3 is the most sustained portion of a 5 wave advance; more so for iii of 3, and so on. If this is the case, the advance of PM mining stocks in the next two months is likely to stun all but the most devout gold bugs.

Very tellingly, both ratios of HUI:Gold and Silver:Gold have been trending up which is an indication that the move in precious metals is gaining recognition and speculative fervor is brewing.

Click to enlarge>

The picture at the start purports to depict a notorious incident when the then Soviet First Secretary Khrushchev pounded the table with his shoe at a UN assembly in 1960 (Wikipedia: Nikita Khrushchev).

Gold was weak Monday on the heels of news that the Treasure department is lobbying congress to allow the IMF to sell 400 tonnes of its gold. Here’s the original Reuters report of the planned gold sale. If we look at where the potential systemic financial failures are today, we’ll come up with a handful of countries that were, let’s say, never intended to be the recipient of IMF funds when it was founded. Surely, that irony is not missed by many. Be as it may, I don’t expect the bureaucracy to call for its own demise, hence I don’t yet consider its attempt to shore up revenue by selling gold as gold price manipulation.

On the other hand, similar proposals have come before, and each time rejected by the US Congress, proving that its collective IQ is at least in the double digits. Perhaps it is even aware of the golden rule:

He who has the gold, makes the rules.

While 400 tonnes may sound like a lot (about $12 billion at current market value), its a drop in the bucket compared with central bank reserves of countries that have stated their intention to diversify away from US dollar denominated assets. Here’s a list of central bank gold holdings as a percentage of total reserves. A clear dichotomy exist between the CBs of “East” and “West”. Since the annual production of gold is a small fraction of the above-the-ground stock (a defining characteristic of monetary metal, one might add), the best way to in crease CB gold holdings is to buy from other CBs. Hence I predict that no matter how much of its gold the IMF will sell, it will find eager buyers. At the mean time, any price weakness is a gift to buyers of physical bullion.

Before I go any further, the following is based on the ASSUMPTION that gold is in a long term bull market.

Based on all the anectodal evidences that I can collect, the public simply has NOT bought into the gold’s bullish story. The public is still on the sideline, although they have definitely noticed that gold has been going strong.

I’ve talked to my uncle, my friend in the US, and my relatives in Asia. NONE of them has bought any gold. And these are people who I have REPEATEDLY told them to join onto the bandwagon. Of course, all of them have watched from sideline and claimed that gold is expensive.

There should be 3 stages of a complete bull market. In the first stage, only the smart money moves in. In this stage, markets should be traded, because they don’t go up that much. In the second stage, the public starts to join. Gradually, in this stage, contrarian opinions will be increasingly WRONG. This is the stage where you simply want to buy at the dip, and continue to accumulate. This is the stage where the opinions of the majority of the participants will start to turn out to be correct. You want to be buy and hold in this stage, and don’t get shaked out of the bullish ride. The last stage is obvious the maniac stage, where a lot of gain can be made in a short time. Contrarian opinions will be right at this stage.

I’ve read so many articles on the internet, claiming that we have begun the second stage, either from the technical charts, or because gold has started to rise against all currencies since Nov 2005. Unfortunately, it looks like this bull market is still in stage 1, or probably in the transition from stage 1 to stage 2. The public simply has not started to buy in yet. However, the recent rise from $650 to $935 appears to be the moves from smart money. I hear more stories about people selling their jewelries for cash, Indians unloading the gold for stocks, and people balking at the high price of precious metals, than the other way around.

What this means is that it may take further inflation and global currency debasement to trigger public to come in. Or that price of gold pulls back somewhat to attract more people to join, or breaking $1000 barrier to wake more people up. But one thing is for sure. For this gold bull market to continue, there MUST be more money to come in. The recent lackluster performance of mining shares is a clear indicator of lack of hot money driving up the stocks. There is only enough money driving up physical markets. A few of the senior gold companies did fine, while majority of them is still underperforming. And the junior companies simply are limping at the absolute bottom. There is a clear LACK of money or capital.

Vice versa, treasury bonds are bubblish, flushed with all the money.

The good news for bulls is that the bull market has barely begun, and there is still plenty of time to pick up your shares. The bad news is that one needs to be even more patient to wait for this bull market to unfold (if at all, or if you believe in it).

The other conclusion is obviously that for the Elliot wave technicians, they should probably go back and re-label all the waves. The longest wave 3 advancement should coincide with the increase of public participation. And it’s probably still in the (near?) future.

Frugal at My 1st Million At 33 .com

I think gold markets are actually going to head down.

Last week, I bet on a stock market going up, along with mining stocks too. Unfortunately, only the first half of my bet was right. My plunge into mining stocks backfired with an immediate 4% loss.

After looking at many charts, I decided that I was wrong, and I’m going to lighten up.

Today, I’m going to be really busy. Only hope that market will afford me a good chance.

I think the best place to be right now is probably Euro and Australian, and short-term US treasury bonds. Everything else seems to be quite dangerous.

Best luck.

News Alert
GATA (Gold Antitrust Action Committee) is set to take out a full page ad in Wall Street Journal this Thursday according to this article by FN Arena News.

The Gold Antitrust Action Committee (GATA) is an organisation which has been nipping at the heels of the US Treasury Federal Reserve for several years now. The basis of GATA’s accusations is that these institutions, in coordination with other complicit central banks and the large gold-trading investment banks in the US, have been manipulating the price of gold for decades. Were it not for this manipulation, the gold price would now likely be in the thousands of US dollars, GATA suggests.

The means of manipulation have largely revolved around the gold leasing and gold derivatives markets. GATA believes the US Treasury has been able to effectively sell gold under the radar of the limited disclosure rules of the International Monetary Fund – global bookkeeper of central bank gold transactions – for the purpose of artificially supporting the value of the US dollar. The upshot is that while the IMF, and the world, is led to believe global central bank gold reserves total some 30,000 tons, the reality is more like 15,000 tons. Today’s gold price is a reflection of the former figure.

A PDF version of the ad can be seen here.

Looks like both gold and silver are breaking new highs again. Pring thinks that mining stocks must lead the physical spot market. But I simply don’t agree to that. If there are any rules, it is that rules are meant to be broken. From my own observation, mining stocks, silver, gold, and platinum, are simply different animals in the same running race. Sometimes, one gets ahead or behind another. But the key is to recognize whether the pact is going forward or not.

I’m short-term bullish on gold pact right now, with the caveat of a potential pullback right after Fed’s meeting on Jan 30. I’m afraid that Fed will not cut another 0.5% (which seems to be the current concensus), and then market simply turns down on Feb 1st. I don’t think markets will be down on Jan 31st, since mutual funds need to make a better set of numbers.

In any case, $US has made its moves already. US dollar index has dropped precipitiously in the last 2 sessions to 75.5. All currency pairs are going up against $US.

Maybe we will see $999 gold before we see $800 again (if ever).

I truly expected that I was going to have a BIG down day yesterday. But amazingly it went so much better than I expected. The big caps in PM still held up or went up under such a stormy weather. Of course, needless to say, physical metals simply went straight up again after Fed cutting 0.75%.

Does that mean PM is in safehaven? Absolutely NOT. There is still a possibility of gold pulling back to $800 (or even $700 according to some pessimists out there). If gold goes to $800, and with a gold-to-XAU ratio of 5.4, you get a XAU of about 150, and possibly a HUI of 375 (some 20% off from current level), right in line with the support lines of both indexes. If gold goes to $720, then XAU will probably go to 128, and HUI may go back to 320 (some 30% off from current level). I see that the first scenario probably may hapeen with 75% probability, and the second scenario with 10% probability. Precious metals ALWAYS surprise investors/traders on both upside and downside. So I keep expecting the surprises to come.

Today’s market will be ugly again, because of the outlook from Apple (AAPL). I should have shorted AAPL when it broke 160/180. QQQQ is going down again. And I am short via naked deep-in-the money puts in QID only for 2.5% of my portfolio value.

Buckle up again. It won’t be pretty.

Look at where we are today. Who are the real losers when the housing buble burst, when I first claimed back in 2006? It simply disgusts me why and how everyone needs to be put up with all the pain along with the real culprits of the housing bubbles. Unfortunately, that’s how our financial systems work. Everything and everyone are inter-linked together.

Best luck and take care.

With silver joining on the list of new high on Monday in Asia, I expect this current rally in precious metals to continue.

It almost looks like that HUI will not have any significant pullback until much later.

For those who are not on board yet, I can only say good luck to you. Patience throughout 2006 to 2007 (almost 2 years) is finally paying off big time now. And certainly I have plenty of patience (usually too much of it).

Best luck.

The one on my buy list is JOYG. I’m very tempted to buy it at 60 to 61 after missing the last big run up. If you don’t believe in gold/silver, at least you can try the gears that dig them out. This is the same reasoning with buying CSCO, while all the dot com booms. The infrastructure & gears will always be needed.

Be back tomorrow from my vacation, but maybe I won’t get the time to write a post.

Regards.

I hope you all have some. As I have repeatedly asserted that this market is not to be timed, but to be invested. There is probably not a single person on Earth who can tell you that HUI will go up 11% in 2 days right after new year. But signs were there in the gold spot price.

Don’t you hate that you haven’t put enough into this sector?

Markets have spoken. Everything may go down together, but not everything will go up afterwards. Make sure you pick the winning side.

I have been contemplating on buying more physical gold/silver coins. Interesting emotions emerges when I visualize myself with the coins, having the actual price in mind. A gold coin would be costing me about $825, while a silver coin would be costing me about $16. The weights are the same, while the size of gold coin would be about 25% smaller in diameter (due to the difference in specific weight).

I kept thinking, “Geez, this tiny thing (gold coin) really costs.” While for silver coin, my first feeling is that it’s a pretty reasonable price if not cheap. I’ve seen many wild claims from gold bulls that gold is going to $2000+ or even $5000. I took their words without thinking. But those claims are based upon the BUBBLING price of $850 back from 1980. From the following historical chart of gold price,

I’m tempted to say that a “reasonable fair” price would be about $140 (roughly mid-point of $180 and $100) from 1975 to 1978, that will give an inflation-adjusted price of $536.84, based on Fed’s inflation calculator. If I tack on an extra 0.5% under-estimate of CPI annually, the price becomes $629.73. If I tack on an extra 1% under-estimate of CPI annually, the price becomes $738.12. Whatever mark-up you want to apply, it certainly appears that the current gold spot price is trading above the “fair” price. It means that gold is not as cheap as before. But it also means that the gold bull market is definitely in motion, and that the second phase of gold bull market is most likely upon us.

Another corollary from this, silver will always be the “poor man’s gold”. It will always rise more in percentage, simply because it is cheaper in absolute price, and it has similar monetary values like gold.

What a surprise! Or maybe not. I called up a local coin store. They had really good price. But they don’t have ANY silver coins available. Except the really big dealers like monex.com, I couldn’t get the silver coins that I wanted.

The store owner told me that silver coins have been in short supply for several months already. They have zero inventory. And even gold coins are first-come-first-serve basis. I asked the owner when I can call back to get my hands on what I want. And I was told that he does not know possibly when he will have anything for me.

Another thing that I’ve noticed is that Kitco’s silver prices are SO MUCH higher now. The premium over spot if I remember correctly didn’t use to be this high. Their silver coin prices are “no longer competitive”, well, that is assuming that you can find a piece of it. Kitco’s price is about 5% higher (or about $1 higher per silver eagle coin). That’s simply ridiculuously high.

I don’t know what’s wrong out there. But apparently there is some physical shortage. I’m guessing that all the smart money is buying ahead of the upcoming big wave of Fed interest rate cuts. I’m still watching, but I’m quite tempted to just jump into the market based on what I’ve heard from this store owner.

Adam Hamilton is an excellent writer as a gold-focused newsletter. But that does not help you much.

My personal experience with Zeal Intelligence newsletter is that it talks about the general market conditions a lot more than individual companies. He has a risk ranking of some 30 to 50 resource companies. But that doesn’t help me to select and narrow down to just a few.

Furthermore, his trading records don’t appear to be all that great. He was stopped out of MANY positions on August 16 2006, even though he claims that his performance for investing near the August 16 bottom is terrific. Well, yes of course, when you constantly recommending purchases month after month. And if you don’t include and factor in all those stocks that were stopped out with heavy losses.

And certainly, one of the bad thing about Zeal is that they do NOT refund your subscription at all. I could NOT find a trial period either. I guess that I should have taken that as a sign.

Certainly I still valued Zeal’s publication and analysis highly, as a guide for the general trend/valuation of the gold market. However, I think reading those free posts from 321gold.com is probably sufficient, since Zeal Intelligence offers few actual stock picks.

The above is SOLELY my own opinion as a past subscriber. Please read my disclaimer. I welcome any other differing opinions and comments posted in the comment sections. All people are advised to read the comment sections for any other inputs.

In a bull market, it’s more dangerous to be out-of-market, rather than be in the market. The current correction in HUI looks like to be almost over, coincident to the rise of $USD.

Despite the fear in rally in $US to derail HUI, and/or a serious stock market correction due to mortgage problems, the chart of HUI looks eerily similar to the correction back in 2005.

According to the ChartWorks from Bob Hoye at InstitutionalAdvisors.com, the best time to buy gold is when $US just crosses above the 20-days EMA level, estimated to be from Dec 28th to Jan 18th. To collaborate with the above timing window, I played with my MACD calculator by projecting future prices of HUI in the following four scenarios: flat, downward, slightly upward, and down and then up. The last valid data point is on Friday of Dec 7th, closing at 412.06. The projected chart stops when MACD makes a bullish cross-over.

1. Flat (stay at 400 for 13 days):

2. Downward (-3 points for 14 days to 371, and then stay at 375 for 6 days):

3. Slightly upward (+2 points for 5 days from 408, 410, 412, 414, 416):

4. down and then up (-2 points for 12 days down to 400, and then +2 points for 4 days):

From all of the above scenarios, the MACD indicator is certainly going to have a bullish crossover from Dec 14 to Jan 4 (in 5 sessions to 20 sessions in the worst case). The previous significant buy signal from MACD triggered at around the bottom of HUI near August 16. With all the fundamentals working in favor of a continuing gold bull market, I expect that the time to over-weight gold market is very close. I hope to see spot gold to correct back to 720 to 745 area before I jump back into HUI (via GDX). But again, don’t you want to miss the train!

Just a note, depending on the price action, the actual bullish MACD may be later than earlier. Essentially, lower prices will delay this signal.