Two simple secrets to consistently making profits in gold and silver

There are two simple secrets to consistently making profits in goldGLD +0.40% and silver SLV -0.66% . Anyone can easily learn these secrets.

First some background is in order. In my article Gold top was easy to see , I demonstrated how the adaptive allocation models at The Arora Report correctly called the top in gold for this swing at $1757 and gave a sell signal. Adaptive models are the models that automatically change themselves to make correct market calls. The same adaptive models previously also correctly called the gold top when gold was over $1900 and gave a signal to sell half. The chart illustrates the calls.

The adaptive model also works well for silver as shown on the chart.

The two variables that determine gold and silver prices are inflation and risk. The sub-variables of inflation are deflation, disinflation, and inflation. The sub-variables of risk are risk on and risk off.

A mathematically inclined investor can easily develop a model using the above described variables and look for correlations with the gold and silver prices. The model should assign the highest weight to the variable with the most correlation to the gold price and the lowest weight to the variable with the least correlation to the price. The investor is ready to consistently call the twists of the gold and silver markets correctly as long as the investor changes the weights based on price correlation to the variables.

In my articles, Gold top was easy to see and Gold, silver sell signal backed by Kim’s death , I showed how anyone without any knowledge of computers or math can also easily call twists and turns of the precious metals accurately.

The diagram shows the current state of the adaptive model.

Reaction of gold and silver to the new threat from Iran shows that the model continues to work and rake up bigger profits for investors following the model.

The chart of gold shows the timing of Iran’s threat to close Strait of Hormuz and the timing of a statement by the 5th Fleet of the U.S. Navy.

Oil prices are very sensitive to rumors of attack on Iran not only because Iran is a major oil producer, but more importantly because of Iran’s ability to block the Strait of Hormuz. A large part of the oil from the Middle East to the Western World is shipped through Strait of Hormuz, which is 21 miles across at its narrowest point.

The shipping lane is only two miles wide in each direction with a two-mile buffer zone in between. The narrowness of the lane makes it easy for Iran to block it. Iran is on the record stating that if attacked it will block the Strait of Hormuz.

Going back 30 years, gold almost always has spiked up whenever there has been a threat to the Strait of Hormuz. As the chart above shows, this time is different. The conventional wisdom would have dictated gold jumping on the news, but gold went down.

The behavior of gold is exactly as the model has predicted. Even with the threat from Iran, need for safety has stayed in the yellow region depicting the current adaptation of the model.

The foregoing demonstrates the two secrets to consistently making money in the gold and silver market: leave opinions at the door and listen to the behavior of the markets relative to the two variables described above.

Unless geopolitical conditions around the world get worse, the short-term direction in gold, silver, as well as in miners is down. Trading opportunities will abound in SPDR Gold Shares (GLD), iShares Silver Trust (SLV), ProShares UltraShort Silver (ZSL), Market Vectors Gold Miners ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ), First Majestic Silver Corp. (AG), Coeur d’Alene Mines Corporation (CDE), Hecla Mining Co. (HL), Silver Standard Resources Inc. (SSRI), Pan American Silver Corp. (PAAS), Barrick Gold Corporation (ABX), Newmont Mining Corp. (NEM), Agnico-Eagle Mines Ltd. (AEM), Silver Wheaton Corp. (SLW), and Goldcorp Inc. (GG).

Gold has tumbled to a major support at $1532 and silver is near major support at $26.50. Our proprietary Smart Money Indicator is showing that bulls are making a bold stand here and attempting to run gold and silver up from here. If this support is broken, the next major support level in gold is $1450.

The most important point is that an adaptive model will change with the market conditions and keep investors on the right side of the trade as long as investors understand the two secrets outlined in this article. – MarketWatch

Tags: Gold analysis, Gold future prices, Gold futures, Gold investment, Gold news, Gold price, gold price forecast, Gold prices, price of gold, Spot gold, Spot gold price

Posted by admin on Dec 30 2011. Filed under Gold predictions. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry