I am not a big fan of gold [and believe that the best we can expect for 2013 is that it will go sideways.] That said, [however,] I believe that there is still substantial money to be made from a such a sideways movement [and much, much more should it actually increase somewhat in price. This article explains exactly how.] Words: 691; Charts: 2
So says Macro Investor in edited excerpts from a post* on Seeking Alpha entitled A High Risk/High Reward Play For Gold In 2013.
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The article goes on to say, in part:
For gold to go up, I feel that…inflation expectations have to be high (this is not the case…); the US Dollar has to weaken against other currencies (it is not likely to happen…) and the demand for physical gold has to strengthen (this is unlikely. In fact, demand may drop…)
Let’s examine some of the gold ETFs.
As the chart above shows:
The core gold ETF, SPDR Gold Trust ETF (GLD), which tries to reflect the price of gold bullion, is up about 4% over the past year. However, over the past 5 years the ETF has almost doubled.
The 2x leveraged ETF pair, the ProShares Ultra Gold ETF (UGL) and the ProShares Ultrashort Gold ETF (GLL), try to replicate on a daily basis 2x or -2x the performance of the gold bullion….[and] UGL is up about 2% for the year, while GLL is down about 17%….
The 3x leveraged ETF pair, the VelocityShares 3x Long Gold ETN (UGLD) and the VelocityShares 3x Inverse Gold ETN (DGLD)…[with] UGLD flat and DGLD down 24% in the past year. This is to be expected as these 3x ETFs are leveraged even more than the 2x ETFs, so are expected to erode faster.
So, how can gold investors profit from the above in 2013? To me, the best way is to buy puts on GLL. [As the chart below shows,] over the past 5 years, as GLD has almost doubled, GLL has lost about 75%. This means investors who shorted GLL would have quadrupled their investment. [For a similar article on investing in inverse puts (on silver) by the same author read: If You Think Silver Is Going To Increase In 2013 Here’s How to Best Maximize Your Return]
Expected Profit From Buying This Put
The July 2013 expiration 58 strike puts on GLL are trading at $2.80/3.40 (bid/ask)….[To determine] what the expected profit of buying these puts [would be]…I:
assumed that GLD stays flat in 2013 and its daily volatility remains unchanged,
created a set of 140 daily returns for GLD, and 140 daily returns for GLL leveraged at -2x for GLD,
estimated the price of GLL and that of the July 2013 strike 58 put on GLL at the end of the 140 daily returns,
assumed that the cost to buy the put is midway between bid/ask, or $3.10.
Over the 5000 trials, the 95% confidence interval for the expected return of buying this put is:
53-67% return if GLD were to appreciate 0% in 2013
97-110% return if GLD were to appreciate 5% in 2013
153-174% return if GLD were to appreciate 10% in 2013
Of course, investors are risking 100% downside as well, as the put may expire worthless.
Potential Losses From Buying This Put
If GLD were to decline by:
5% the put would still return 3-15% with 95% confidence,
10% the put would end in a loss of 8-18%,
15% the put would end in a loss of 40-50%,
20% the put would end in a loss of 65-70% and were GLD to decline by
25% the put would be down by more than 80%.
When it comes to buying puts, my rule of thumb is that unless there is an upside to buying the put compared to the underlying, I wouldn’t even buy the put. By that logic, investors who believe that there is a more than 10% downside to the price of gold in 2013 would be better served to consider strategies involving the underlying GLD ETF itself.
I think it is safe to assume that a 50%+ return with this put is not unreasonable, if investors believe that gold will at least stay flat in 2013. [Remember, too, that if an investor were to buy such a put as described above, and gold was to go up by just 10% in 2013, the return would by somewhere between 153% and 174% with 95% confidence.]
Disclaimer: The above is not meant as investment advice….Before investing in any of the above-mentioned securities, investors should do their own research, consult their financial advisors, and make their own choice.
I am not normally a big fan of precious metals but in 2013 I am an unabashed fan of silver. If SLV were to return 15% next year there is a 95% probability that a ProShares Ultrashort Silver ETF (ZSL) put option on SLV would return 80%+! [Let me explain how I have come to that conclusion.] Words: 985
According to David Morgan 2013 will be a bullish year in which a new leg up will start with gold going up 10% to 20% and silver a good 30%. That leg up is starting right now, although we probably will not see a substantial acceleration in the leg up like we saw in the first part of 2011 but, obviously, as soon as $50 is crossed an acceleration can be expected. [Morgan explains his position in article excerpts below.] Words: 912
Savers will not stand idly by and watch their savings get wiped out by taxes and inflation….[which] is good news for investors who buy and hold commodity assets today – and it’s also a stark reminder to not be fooled by the short-term head fakes that might make it look like the commodity bull is over. Stay the course – the biggest profits are yet to come. [Here’s why.] Words: 405
What is developing in the markets is not the beginning of another leg down in gold, but a second chance to get positioned for what should be a very profitable intermediate degree rally over the next 2-3 months. [Let me explain further with a number of charts to support my position.] Words: 460
The facts can’t be denied: China is on the hunt for gold deposits and mines. These gold-focused deals will add more ounces to the country’s pool of gold assets [which will only exacerbate the ex-China downward trend in the supply of gold outside China]. Given that what’s produced in China stays in China (where there is escalating domestic consumption), a widening of the fundamental market shortage in gold seems almost certain. Words: 1138
One of our favorite charts is the oscillator which shows the probability of gold returning to its mean after a dramatic rise or fall. We believe it helps investors put the current correction in context with historical moves and determines potential buying and selling opportunities. [Here’s what the oscillator chart and several other factors are telling us about the prospects for higher prices for gold in 2013.] Words: 539; Charts: 4
[Here is a summary of my]…thoughts on the 2011 gold price peak relative to the last time a long term bull market ended (back in 1980): Long-term bull markets almost always end with a bang, not a whimper, and last year’s price peak was clearly the latter. A 25% rise over a period of about two months last year [does not an] end-of-cycle, blow-off top [make]. No, I think there’s still some room to run for gold if for no other reason than that we haven’t even come close to the “mania” stage that characterizes the end of long-term market moves…[Let me explain further.] Words: 359; Charts: 1
Our subscription service provides detailed technical analysis of where the price of gold, silver and precious metal stocks are going short term (in the next week or two), intermediate term (within the next 3-6 months) and long term (the ultimate top) in each stage of their respective bull runs. This service comes with detailed charting based on conventional technical analysis and our proprietary fractal analysis based on the ’70s. Below are some of our latest comments and rationale for expected price movements in gold without illustative charts which are only available to subscribers. Words: 1000
I am not predicting a future price of gold or the date that gold will trade at $4,000, but I am making a projection based on rational analysis that indicates a likely time period for gold to trade at $4,000 per troy ounce. Yes, $4,000 gold is completely plausible if you assume the following:
Lately analyst after analyst (161 at last count) has been climbing on board the golden wagon with prognostications as to what the parabolic peak price for gold will eventually be. That being said, however, only 51 have been bold enough to include the year in which they think their peak price estimate will occur and they are listed below. Take a look at who is projecting what, by when and why. Words: 644
Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system…and the amount of money printed is absolutely staggering. As a result of this, inflation hedges, particularly Gold, have been soaring…[but] for gold, for example, to hit a new all time high adjusted for inflation, it would have to clear at least $2,193 per ounce. If you go by 1970 dollars (when gold started its last bull market) it would have to hit $4,666 per ounce. Words: 581
We now have a really strong probability that the correction which started at $1913 on 23 August 2011 has been completed both in terms of Elliott waves and also in terms of time elapsed. If this is correct, the gold price should soon be expressing itself in violent upside action as it moves into the third of third wave which is still targeted to reach $4,500. [Let me explain in detail (with charts) how and why my most recent analyses confirm my earlier target of $4,500.] Words: 1085
According to my 2000 calculations, if interest rates and inflation stay constant over the next 2 years, we could expect to see (with 95.2% certainty) a parabolic peak price for gold of $4,380 per troy ounce by then! Let me explain what assumptions I made and the methods I undertook to arrive at that number and you can decide just how realistic it is. Words: 740
The closing of the gold window back in August 1971 has led governments worldwide to create endless amounts of worthless paper money and the resulting credit bubble has created a world debt exposure of over US$ 1 quadrillion (including derivatives). It has also created perceived wealth for big parts of the world’s population – a wealth which is only backed by promises to pay and by grossly inflated assets. Few people realise that this wealth is totally illusory and will implode considerably faster than the time it took to create it. [Let me explain.] Words: 890
My Fractal Gold chart work is a direct comparison of Gold, today, to the late 70’s Gold Parabola. Thus, “timing” is taken directly from the late 70’s cycle, with price targets created from a combination of the late 70’s Gold price and different technical analysis techniques. We developed a price target back in 2006/ 2007 for Gold to reach the $10,000 to $12,000 range during this Gold Bull and we still stand by that forecast. Let me explain where we are at this point in time.
This is not a typical bull market. Gold is not rising in value, but instead, currencies are losing purchasing power against gold and, therefore, gold can rise as high as currencies can fall. Since currencies are falling because of increasing debt, gold can rise as high as government debt can grow. Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if its correlation with the price of gold remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and [this] rising debt will cause the price of gold to rise to $10,000…over the next five years. (Let me explain further.] Words: 1767
The correlation between the gold price from 1968 until 1979 and from early 2000 until today is an amazing 89.65%! More specifically, the correlation from 1975 until April 1979 and from January 2008 until today is an astonishing 97.83% suggesting that gold will reach an ultimate top of $5,000 per troy ounce before the bubble bursts. Words: 330
It is my contention that the price of gold rallies whenever the U.S. dollar’s real short-term interest rate is below 2%, falls whenever the real short rate is above 2%, and holds steady at the equilibrium rate of 2%. Furthermore, for every one percentage point real rates differ from 2%, gold moves by eight times that amount per year. So if the real rates are at 1%, gold will move up at an 8% annualized rate. If real rates are at 0%, then gold will move up at a 16% rate (that’s been about the story for the past decade). Conversely, if the real rate jumps to 3%, then gold will drop at an 8% rate. [Let me explain.] Words: 982
I believe that the price of gold will… reach… $3,000, $4,000, and even $5,000 [per troy] ounce…during the course of this long-lasting bull market, a bull market that still has years of life left to it…[although] prices will remain extremely volatile – with big swings both up and down along a rising trend…The future price of gold is a function of past and prospective world economic, demographic, and political developments [and in this article] I review some of these developments and trends – so that you can come to your own “golden” conclusions. Words: 3800