The pullback/dip we looked for in early March followed by a push behaved itself perfectly and now traders are sitting sweating and wondering whether they should really take profits they way they promised to themselves they would when they bought in. Well it is important to trader’s self esteem and to sustained profit collection habits to stick to one’s trading plan and then once out ,to reassess and plan anew and define new buy signal targets and exits.
From my own experience and observing others, I know what in fact happens in 99.8% of cases is that Mr/Ms Trader (who did scrabble in with buys although a bit late !) sits now in profit in intense analysis – trying to “read” what to do now.
Analyis of self follows. Analysis of markets. Analysis of risk. The Gold price moves .40 up and they think – good – no need to take profits now. Then 15 minutes later feel guilty for not sticking to the promises they made to themselves when buying. Then 20 minutes later the share price is up 5% again and they thank heavens they did not act prematurely. Then they ‘phone their buddies for what they think. They also telephone their brokers to hear what they think. They curse their newsletter writers for not writing twice a day to reassure or to prompt. Noble trading plans are forgotten in the gold rush.
You can see we are also doing a reminder to ourselves not to rationalise a new strategy halfway through the previous one.
What is clear though is that this is not a little weakling toy Ferdinand bully. This bully is young – but his hormones are ripe to become one of the biggest bullies in history. His DNA ( growth prospects) are being exhibited by many of the golds indicators and by rational behavioural factors. Russia, China, Japan, Malaysia, India, Indonesia, the Middle East etc are steadily buying the yellow metal wherever they can find it while the West is selling it to protect its banks and financial system using a soft gold price to perpetuate one of the biggest frauds in history – the fraud that the yellow metal is a mere quaint relic of history and not a useful store of value.
The value of net short positions relative to longs – I believe shows that to fill the paper short positions, about 15000 tons of gold are needed, several years of mining output. Public opinion will not allow Western Central bankers to keep selling gold once the public becomes aware what has been going on . If that sales source dries up – plus Wall Street sells off and money leaves the US$ – watch the fun. Gold can be back above 0 in a matter of months. SA Gold shares can be further fuelled by a falling Rand as worried money leaves emerging markets.
Even if there is a surprise and the Rand stabilises or strengthens as Europe later decides to invest in the land of gold, our gold mining shares would be in for a bonanza. To suggest that gold shares should not be bought now because they are discounting a gold price of 0 ignores what is happening. Gold is being bought by smaller investors particularly in Asia and those investors are not as easily manipulated as are the trader banks in recent years. Japanese banks are also widely assessed as being in trouble. Add some more stress to the system such as Madass Saddam pulling Arabs into a war with the West – there could be real fireworks.
Drama scenarios aside, there are enough technical indicators saying the gold bull is but young and that those who are not aboard will regret it. Cycles are complex and there are some analysts saying it is time to sell, planning to buy again in June. I don’t think so – my cycle research prefers a scenario for a big push up into the window 8- 15th April followed by aggressive profit taking then ( perhaps from a JSE All Gold Index at 3484 or 3700+ currently trading at 2771) which if this scenario plays out, leaves some more fun for gold believers who buy now.
On the other hand you have earnest stockmarket software users who call themselves technical analysts, looking at their “overbought” indicators and swearing they will not be caught buying too high again. So they hesitate. Meanwhile they do not fully grasp the implications of the trend indicators which are showing a massive trend development on a multi year scale.
So what to do? First decide whether you believe in buying now ( risks are higher of a pullback/ dip than when we were calling the bully before). If you want to catch the ride despite some risk, get ready.
We are running a strategy as we have before – buy the dips full weight – sell the targets 1/3/ leaving 1/3 running so as to benefit from any brewing rocket and to benefit from any brewing brief downhill runs ( buying opportunities).
One subscriber called, saying but but but Goldfields and Harmony and Durban Deep etc. have sliced through targets set – with hardly a pause. To that investor I say ja well no fine but if a big dip comes she may well end up scrabbling out at levels slightly worse than the profit taking levels planned in previous Trader’s Calls… Those who stuck to the plan are now with profits in the bank and plenty cash to buy the next set of signals. Well done.
Those who have held on – my understanding is with you and you may well end up better off this time, but on a ten year return profile you have compromised your system and had better believe in a system and act on it in future – or else 60% of those profits are 90% likely to be lost.
Now that the lecture is over, let’s start from scratch again, assuming someone has cash in the bank and wants to catch the next phase of the gold run and is willing to take some risk that a big dip does not happen first.
I look at the cycles and technicals and also at relative indicators such as $Silver and see a buy signal. I think about what are the odds of the Easter Passover weekend being peaceful or it being chosen for a major terrorist or Madass Iraq event. I look at the vulnerability of Wall Street and the probable plan that many traders will want to be square on their industrials and financials before the holiday long weekend. I see markets thin at the moment and many traders away tonight and tomorrow already – a perfect time to do an assault on the 0 resistance – and what a perfect time for a run to 7.40 or 9.50 (Gold Spot ) resistance.
A risk ( opportunity) as I see it is this scenario: Chinese planners wanting to buy more gold announce over the long weekend that they intend selling some of their gold reserves in coming weeks: confusion as the West wonders why they would announce that – but in the meantime the Gold price dips early next week. Then a day or two later the truth dawns as traders buy whatever they can find all the way well into the 0’s. Conjecture – but plausible after recent Bundesbank behaviour.
So next step I ask myself will $Gold be at 2 or at say 3 or at the current 8.10 next week? Tech and cycle favour higher – so – the decision today for me is to buy/add.
What ? Well Goldfields and Harmony have had a good run and although they should outperform other heavyweights medium term, does one buy them or maybe something which has not run as much such as Anglogold which although hedged is popular with foreign institutional buyers and has the resources to unwind some hedges?
Answer – buy some of all three to diversify risk somewhat and maybe add some Durban Deeps for more profits ( but more volatility) as well. Here follows a suggested buying range, a suggested initial stop, targets 1 and 2 for profit taking of 1/3 of positions at each target and a target 3 for taking profits on any intraday sell signals – and for tightening profit protection stops on the remaining 1/3 of positions.
I had better hurry – as I type this, the Gold price is at 8.50 and shares are mellow to soft. Maybe a last buy chance before the next run. Okay:
Anglogold: buying range = R527 to R568 with the current R553 saying don’t miss the boat; initial stops: at R547 for those who get in at current levels or higher for say half and a wider stop at R520; run a trailing stop of three times every day’s previous three day daily range high to low; target 1= R603.80; target 2= R653; target 3 = R815 or R980. For more gearing and have volatility work in your favour, buy 2ANGIB call warrant.
Goldfields: buy R103 – R118 with R115 preferred not to miss the boat; initial stops at the one day low or at R104.20; trailing stops at 3 day and 5 day lows; targets 1,2,3 at R134, R157 and R197. For more gearing, buy the 3GFIIB call warrant.
Harmony: buy R115-R129 with R126 preferred not to miss the boat; initial stops at the one day low or at R113; trailing stops at 3 day and 5 day lows; targets 1,2,3 = R153, R182, R214. For more gearing and have volatility work in your favour, buy 1HARIB call warrant.
Durban Deep: buy R32- R37 preferred R36 not to miss the boat; initial stops at the one day low or at R29 .00; trailing stops at 3 day and 5 day lows; targets 1,2,3 : R47.00, R58.10 and R70.00.
So have fun – you deserve it after waiting 21 years for the cycle!