Long Term Gold/Silver Analysis

I am hoping to get a good discussion going about gold and silver. I am looking for an opportunity to go long on gold/silver/miners on a long term trade 1+ years. Because I live in the US, we can’t trade CFDs like many can through their Forex brokers. Although there are some other attractive investment vehicles to trade Gold through. I am looking to trade gold prices through a triple velocity ETF. Essentially whatever percent gold moves, the ETF moves 3 times that. Because of that it has a strong compounding effect. I am looking at going long on either NUGT, USLV or a mix of both. Regardless of the method to get long on gold, the analysis is the same, so I was hoping to strike up a good conversation with those also looking for long term opportunities.

Nice thought… to do business in gold… but by doing these type of business… you will be a heavy patients…

With that being said I will offer my analysis first. I have my fundamental views which give me an idea of where gold could begin finding it’s legs, and I believe combined with technical could provide the best entry with lowest risk scenario.

[B]Cost of Production[/B]
The biggest thing for me is cost of gold production. I believe this provides the most solid case for a “bottom” in gold. Right now the average global cost to mine gold is around $650, down from $750 last year. I believe somewhere between those two numbers is a range to say with confidence that miners will either halt production, or at the very least halt the selling of their gold. This would in turn affect supply which would drive up futures and the price of gold. I believe any dip below $650-750 would be short lived. Remember though that those are the global averages, there are mines that operate in the $1,000 - $2,000 per ounce range, so I would expect a certain percent of supply to begin being affects at the $1,000 gold range. I have read articles where the “gold floor” idea isn’t practical because it is too expensive for mines to shut down, so mines will continue to run even if gold drops below cost of production. While I agree that mines may not shut down, the writer of the article is missing on important idea, that is that mines may not shut down, they may just decide to not sell their gold into the market. In the gas and oil industry, companies will simply hold onto production until price is driven into a range where it becomes profitable to sell and then will release it into the market. Don’t write off the fact that mines can operate in debt, and hold onto he gold until supply has been choked enough to make it profitable to sell. Just like in the gas and oil industry, mines will not sell their product if it is profitable. They will hold onto it for months or years, all the while continuing to mine the yellow metal.

[B]QE Infinity[/B]
At least as far as feds pumping goes, it seems that has bearish implications on gold. We know that the Feds stimulus won’t exceed 85bn a month, which means it will either remain the same or decrease. A decrease in fed pumping will certainly drive gold price lower. Although I believe the market has for the most part factored in an early 2014 decrease in Fed pumping.

[B]Interest Rates[/B]
This one is fairly straight forward. Interest rates are near zero, which gives a similar scenario to fed pumping. It will either stay the same or go up as it has no more room to go down. This also has bearish implications on gold as a rising interest rate increases the dollar and causes gold to fall.

[B]Imbalance of Futures[/B]
In a contrarian view, there is a huge imbalance of shorts over longs in GLD right now. I believe it is 7 shorts for every 1 long. It’s impossible to tell how long or how imbalanced it can get but strong reversals usually happen when these short/long imbalances are at their most extreme. When the final bulls are shaken out of the market and everyone and their pets are getting short, that is when to expect the reversal to happen. I saw a funny saying that went, “When you barber is giving stock advice, that’s when you know the market is going to reverse”. I tend to believe this is true because it’s went the last of the last or getting on board, the move is above over. I do expect the imbalance to continue or grow for at least a while longer, and I do believe there are still some dedicated gold bulls that are yet to be shaken out of the market and move bearish to jump into the end of this downtrend. Although I think that happens somewhere below the $1000 level. That number is too psychologically powerful for most traders who won’t be able to handle the beating anymore, and will most likely exit days or weeks before a huge surge up happens.

[B]Retracement and Fib[/B]
A 50% retrace is around $960, which coincides with the psychological $1,000 and is the price where many expensive mining operations start closing down. I think there is a strong case where gold forms a bottom here. Based on this idea a good strategy may be to partially buy in at this price range, and if there happens to be a fall to the $700 - $800 then range buy up there also on the premise that this will pretty much be the rock bottom price for gold.

[B]Uncertainty in the Worlds Economies[/B]
Every long term bear that I read about bases his/her facts on continuing improving economies. I tend to believe the economies of the world are far more fragile than most media and governments want to portray. I think many major economies are 1 or 2 big events away from another collapse in markets or a huge spike in inflation. If anything is going to skyrocket gold, it is events that cause uncertainty in the markets. I think many of the worlds markets are far too weak yet to handle any major events, and along with that weakness comes a much higher chance that a major event will happen.

Looking at all of the above I believe the worst case for gold is that it begins forming a bottom in the 1000$ region and perhaps temporarily dropping into the $800 region and then forming a very long 1-2 year bottom. I think the more likely scenario is unrest in the worlds markets in 2014 or 2015 help form a quick bottom in gold and price continues its bullish trend off of the 50% fib level. A share of NUGT right now is 25$, when gold was at 1,700$ NUGT was over $2,000 a share, this is how triple velocity stocks work. Also USLV is at 45$ a share right now, and 35$ silver puts USLV around 600$ a share. I think with the worst case being gold/silver meanders around its production price for a while, it makes buying bullish triple velocity ETFS a very attractive buy at $1,000 gold and lower.

Yes, I agree. This is definitely a long term investment idea. Due to the leveraging power of Forex or the compounding power of 3x ETFs, if an entry can be made within 10% of the bottom, a long term hold could be very lucrative. I am a short term price action trader, so for me this would be a diversification to my current trading portfolio.

Yo Krugman-

What is the reason why you can’t trade futures contracts? Is it because you’d only want to deal with a “Forex only” broker?

US brokers don’t allow CFD trading so I couldn’t trade gold through my Forex broker even if I wanted to.

In this case I personally would go long on gold through a NYSE ETF. I believe in this case a triple velocity ETF has the biggest money making potential with fairly low risk. Because the growth accelerates as the underlying asset increases, that means its losses decelerate as it’s value decreases. With NUGT down at 25$ it will lose $ value slower and slower as gold drops which helps slow downside risk, but as gold rises, NUGT will accelerate upward exponentially. You can see when gold was up strong, NUGT would have weekly movements of 100-500$ a share. If gold drops to $900-$1000 then NUGT will probably be around 17-20$, and if gold is able to make a climb back up to 1900$ highs again, NUGT would most likely climb from its mid $10 range up to around $2,000 - $3,0000 a share. Conversely if you bought 18$ NUG at $1000 gold, and gold suddenly drops to $700(what I consider the price floor of gold), NUGT would be in low $10 or upper single digit range. You can see that the upside is exponentially of greater potential than the downside risk. That is why I think in this case a 3X ETF offers superior profit potential and minimum risk over Forex CFDs, options, futures, standard ETFs or physical holdings. Although I am open to trading ideas and am looking at whatever may offer the best returns with minimum risk.

I do think silver will become the new gold in the coming years. Te silver ETFs aren’t as oversold as the Gold Miner ETFs, which makes them less attractive to me. It is a tricky balance though because while silver may not offer as good of an entry price, it may have much more upside potential which would make up for it. Right now USLV is at 45$, and 50$ silver would probably put USLV over $2,000. I think 50$ silver is more likely then $1900 gold in the next 2 years.

Forex-only brokers don’t offer CFD trading to U.S. residents, but you can trade futures contracts (Indices, Metals, Currencies, etc) via other brokers w/ relatively small amounts of capital. Just trying to gauge your motivation for selecting an instrument such as an ETF over futures.

I did talk to an ApexFutures rep about their futures. She told me a gold future was $8,000, but the price movement is $100 for every $1 dollar of gold. That is some good leverage but that is a lot of capital for a single contract. I also want to avoid investments with expiration dates. I do have a good idea of the price floor, but it’s hard to tell how long it will form a bottom before going bullish again. I can at least sit on my shares as long as I want while still having the same sort of upside potential that options and futures offer. If I did see some bullish price action along side of my fundamentals that I felt would give me somewhat of an idea of a timeframe that price will begin moving, I would consider diversifying my gold position with options.

8k is about right for standard contracts. There are mini and micro contracts out there too. If you’re interested let me know and I’ll PM you the details and a contact @ a broker I’ve used in the past.

Micro contract 10oz (COMEX/Globex)- $800 margin / 1 Tick = $.10 = $1.00 per tick
Mini contract 50oz (COMEX/Globex)- $4500 margin / 1 Tick = $.25 = $12.50 per tick

Just thought I’d share, although it seems like for your outlook an ETF may be best. FOREX.COM offers XAU / XAG to US Residents.

i enter on the retest S/T from 4H chart

I wish you the best. I actually think you went long at one of the worst areas. If you were going to get long you would have wanted to get in around the 1230 area which some price action traders did on a retracement of the Morningstar pattern that formed. You now have overlapping trend line resistance, horizontal resistance and a 50% Fibonacci retracement in the $1280’s, that price will have to hammer through if it hopes to reach your TP.

Also in your picture notice the 2 swing lows around $1270 that will also form a resistance. You want to make sure you are going long when price is at its swing low point, not at a swing high or after price has already shot up and begun hitting resistance.

Dear Krugman,

You are right, gold back to S/R ,and hard to struggle there. Hope it confirm a temporary S here .

Adam, I think the problem is your are looking at very minor support and resistance levels. The level you marked wasn’t a key support level so as you saw today price had little problem breaking through. The key to successful price action trading is mostly in support and resistance levels. And those levels MUST be key levels or else you will find yourself on the losing side of most trades.

Thanks Sir ,

I knew my problem is working with the minor S/R , so if you are stuck in the problem like me right now, do you think i should add more position at the Major S/R 1220 ?

think gold pull back is over now, still finding a support level, it might make an upward trend from here…

If you put… patients in gold business you will get good results… but investment of a business is main point… it would not be much or not be low…

But in these business… sole trader must should have guts… after some days… it will go to rocks your business… by doing promotion …to attract people… then the sole trade will see good results in business with out loss… this is my suggestion of business… don’t mind… if you feel ugly

If you put… patients in gold business you will get good results… but investment of a business is main point… it would not be much or not be low…

But in these business… sole trader must should have guts… after some days… it will go to rocks your business… by doing promotion …to attract people… then the sole trade will see good results in business with out loss… this is my suggestion of business… don’t mind…

It bounced of 1220.00 price…and i wasn’t there :frowning:

Dear Sir

I’m waiting for PA at 1255, please have a look, and give me some advised.


Hey Aaron old friend :)!

Just came across your thread!, thought to throw in my 2 cents.

I also watch Gold closely, and for me, it seems poised for a major break to the downside ( probable, of course ).

End of last year and this year, it’s broken key supports, the last of which has already held at resistance.

I think it’s now at a MAJOR POINT in its story:

Either 1200.0 holds and price climbs towards the overhead resistance [ kick-starting either a range structure or another uptrend ], or

Break 1200.0 and plummet (with possible retraces to key zones for re-test). I think this is the more likely scenario.

Watching this space VERY closely

Cheers! :slight_smile: