June 29, 2013

When I own GOLD its via the  Exchange Traded Fund…….” GLD” .  Its physical GOLD because each share represents a specific quantity of gold held in the London vaults of HSBC.

Yes,…. What happens if HSBC or anyone else in the custodial  chain screws  up ?  That is a risk I am prepared to take.  I take comfort in knowing GLD is among the largest and most liquid of the ETFs. And, I know I have neither the warehouse  storage charges nor casualty insurance premiums that go with owning real gold bars.

Another reason I like GOLD is  because very few equities trade with as much  fear and greed as underlying drivers .  To me, GLD  seems like a credit default swap ( insurance policy ) on the inflationary damage that can result from the  money printing activities of international central banks.  There’s lots of analysis to read ( if not to act on ),   and I like the excitement of knowing China, India or George Soros could be opposite me on any trade.  How’s that for arrogance !

The last time I was involved with GLD was November 28, 2012 when I sold 1,270 shares of GLD at $166.32 and realized a profit of $ 138- before commissions.  Chump change, right ?  The only problem with that is that if I hadn’t sold , as of today, I’d have lost $61,000 by holding on to ” my investment “.  I wasn’t trend following at that time.  My exit decision was based on watching the tape and my feeling that GLD’s momentum had noticeably diminished.  Was I good or lucky ?   I say nervous and lucky !  No ” sitting tight ” for me while herds of Chinese and Indian elephants  were grazing nearby.

Since then,  I’ve really become a dedicated trend follower.  I’ve done back testing on GLD trades at different moving averages and  moving average crossover points.  For me,  the best way to trade GLD is based on where its price is relative to its 200 day moving average at month end….  Not at each penetration of the moving average line,  and not at the 100 day,  50 day,   or 20 day moving average.

Going back to the start of GLD , November 2004, there would have been only 4 selling trades, 2 winners and 2 losers.  The profit from this activity till today would have been 126.9% ( before commissions ) resulting in an average annual profit of 15.86%.  If I had bought GLD at issuance in November 2004 and held till today, my return would have been 98.9% / 8 years =  12.36% per annum.  To me, that 3.5% per annum differential is a sufficient reason to trend follow.  PLUS, I didn’t need to court a stomach ulcer as a result of my reacting  physically to each and every wave of  my fear.  Its better to play golf than to feel the worry relating to the viability of a long position !

At present, using my methodology, GLD is not a buy.  I know the price looks cheap at $119.11, only 3.8% above its 52 week low of $ 114.68,  and 31.5% below its 52 week high of  $174.07.  To me, it won’t be a buy until it positively penetrates its 200 day moving average overhead resistance  at a month end, ( presently $155.29 ).  Yes, I am prepared to miss  $36.18 of that move.  To me, its more important to get in sync with a positive trend than to declare ” I’ve heard the gong ”  and announce ” At $119.11, we are at GLDs bottom ! ” The reason(s) why GLD will  or won’t rebound to $155.29 are  not my business.  Buying  when it does, is my business !

Richard Maurice Gore

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