Gold: Tactics For The Price Sale

It’s very important for investors to act prudently and professionally with their investment capital in the gold market.  As a particularly interesting example, most North American gold stocks had a big sell-off yesterday, while my entire “Thunder Down Under” portfolio of Australian gold stocks was up overnight!   

My current mindset is to be a very modest buyer of North American miners trading at generational lows, and a very modest seller of the Aussies that are moving to fresh all-time highs.  I cover the key Aussie stocks action at www.gracelandjuniors.com to keep investors smiling.

Most of what is happening in the gold market from both a fundamental and technical perspective is pretty mundane.

There’s shoulder symmetry being “sculpted” onto this fabulous weekly price chart.  That left and right shoulder symmetry occurring in the late stages of a giant inverse head and shoulders bull continuation pattern.  It takes many years for these patterns to form and be completed.

That’s because charts are created by fundamentals.  The system risk fear trade of the West is giving way to the more sustainable price drivers of long term inflation and the Chindian love trade.  The transition takes many years and investors should savour the process, like savouring a fine wine.

When gold was trading near $1370 I cautioned excited investors that a pullback to $1180 was required to give this pattern “Michelangelic” symmetry.

That’s happening now.  As expected, the volume is declining as the price meanders down towards my “ultimate symmetry” $1180 target zone. 

This is the interesting gold and COT report chart, courtesy of barchart.com. 

The smart money commercial traders (producers and swap dealers) are eager buyers as gold meanders towards $1180, and that’s good news.

May gold investors in the East are also buyers.  Chinese dealers report very solid demand.  As of Sunday, Indian dealers were waiting for further weakness before doing additional buying.  I expect to see them buy aggressively if gold does make it to $1180 before turning higher.

A lot of gold bugs in the West are also eager buyers of this fabulous price sale, but some may be nervous and unsure of what tactics to employ for risk management.

The most important tactic is to function more as a shopper in a grocery store than as a gambler loading up a dump truck at a magical moment in time.  The buy size should be very small and there will always be more price sales in the future. 

The gambler armed with a leveraged dump truck to buy and a space helmet to project the price to Pluto is unlikely to survive, especially after getting a few market calls wrong. The shopper with a grocery cart will be around for gold’s glorious future, a future that I confidently refer to as the “bull era”. 

Any gold bug who finds themselves feeling uncomfortable during any of gold’s regular price sales should deploy portfolio insurance.

GLD put options and GDX put options are the simplest way to insure a gold stock portfolio against price weakness that makes the investor uncomfortable.

Amateur investors should spend the time needed to get acquainted with put options.  It’s really not any more complicated than buying car insurance or house insurance.

GLD-NYSE is an ETF proxy for gold bullion.  Each “GLD-NYSE September $120” put option has provided superb price weakness insurance for 100 shares of GLD-NYSE stock. 

The “GLD-NYSE December $112” is my insurance vehicle of choice as of today, replacing the September $120.

The September $120 put is trading at about $7, and the December $112 put is about $2.  Each option represents 100 shares of GLD-NYSE, so the September option is worth about $700.  Investors could now move into the December put option for a cost of about $200.

In a nutshell, nervous gold market shoppers can insure about $11,200 of bullion or GLD-NYSE stock until December, for a cost of only about $200! 

The current price area of about $1195 for gold is a superb entry zone, and with the use of my put option insurance it’s a play that is massively skewed on the side of reward rather than risk.

Investors need to remember that fundamentals make charts.  On that note, tariffs and sanctions news is pushing money out of Asian markets and into US markets.  While most of this gold-negative tariffs/sanctions news appears to be mostly priced into the gold market now, if there’s a new surprise, the weekly chart pattern symmetry could get damaged and gold’s price sale may not end until the $1120 area. 

The bottom line: While investors shop for more gold and related items during this great price sale, the GLD-NYSE put option portfolio insurance that I’ve outlined is the best way to manage the risk of a further decline to $1120.  If the price does decline to $1120, investors who employed the strategy should be totally comfortable buying at $1120.

GDX is a little softer than gold right now, but still in my key $23 - $18 accumulation zone for investors.  I’m an eager buyer in the entire zone, anticipating a rally that is most likely to commence from the $1180 area for gold bullion!

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Special Offer For Gold-Eagle Readers:  Please send me an Email to [email protected] and I’ll send you my free “Make Me Richer & Keep Me Mellow!” report.  I highlight key gold and silver stocks (some at new highs and some at lows) that are poised to rip higher, with great tactics to keep investors feeling mellow as they get richer. I’ll include a special GDX put options strategy in the report.  Email me today, and I’ll send it to you tomorrow!

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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form.  Giving clarity of each point and saving valuable reading time.

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