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The IKN Weekly on April 10th 2016: "It’s time to be long gold buy and hold... to position for the big wins, not the small fliptrades"

Through February and March, over at The IKN Weekly we enjoyed the pop in gold and traded some nice wins on it, too. But come the first week of April, it began to dawn on me that my game plan at the time, for gold to run to "somewhere above U$1,200" and then correct back under U$1,200/oz (my brain had fixed on U$1,180/oz, seemed like a pretty number), was looking incorrect. The market and its atmosphere was changing, so the main intro piece for IKN361 dated April 10th was this one, "Robert's mouse and Mark's gold unicorn". 

It's working out well so far. 


Robert’s mouse and Mark’s gold unicorn
But Mousie, thou art no thy-lane,
In proving foresight may be vain:
The best laid schemes o’ Mice an’ Men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!

To A Mouse, Robert Burns, 1785

Find below the last paragraph of last week’s intro piece, “Gold bulls living in the past”, which gets a re-print this weekend as it’s a good entry point to discuss the most likely weak point to my argument:

Fear has dissipated, the markets have rallied and for my money, quite literally, the next piece in the puzzle is a gold price that disappoints its hardcore supporters and dips under the U$1,200/oz level for a while (they do enjoy a chance of shaking their fists at the world, though). That will be our cue to fill up on quality precious metals equities because as day follows night, we’re staring at a whole sector that will be worth a lot more this time next year.

I still agree with the theory behind most of last week’s piece and the strategy that’s been in place but there ain’t no way to hide them lyin’ eyes, every time gold pretends to do its weakness act it pings back in style.

The great thing about having a plan is seeing it unfold and work well. The normal thing about having a plan to predict the near-term movements in gold is that it works right up to the moment it doesn’t. Case in point, the strategy I’ve been running since February which did pretty well for a while by doing this:

1)      Predicted the gold price surge over U$1,200/oz
2)      Predicted it had a limit
3)      Predicted a re-trace from the top
4)      Predicted a new bottom price of around U$1,180/oz in late March (or early April).

It’s been fun, but nobody gets to score a run if you only get to third base. I’ve been through a process of reflection in the last few days, considering my position and re-reading my own words while watching gold and the miners do things that don’t match my ideas. The weakness to my theory is that it got entrenched, I’m guilty of using U$1,180/oz as a totem and gold doesn’t need to drop that far in order to have complied with the ballpark. To cut a long story short, theories are great until they don’t match reality, I got too cute with both the market and myself, I’m bored with being wrong for the right reasons because two years of that is enough for any stomach. The main conclusion I’ve drawn is that gold may drop that extra bit and hit my unicorn number of $1,180/oz, but it doesn’t matter much any more. It’s a pencil-note in the margin, the correct position now is looking further out and positioning for where gold and this sector will be a year from now, not a week or even a month.

The precious metals stocks game is changing in front of our eyes. The sector of stocks we follow may or may not be overbought in the very-short-term, but when gold breaches U$1,500/oz down the line (and it will) current prices for quality stocks will be remembered as the bargains they were. It’s time to be long gold stocks, ladies and gentlemen. It’s time to buy and hold. It’s time to position for the big wins, not the small fliptrades.

The final verse of To A Mouse by Rabbie Burns is the one where he tells the mouse that it’s better off than he the human being, because a mouse lives in the present moment and doesn’t suffer from regret about past actions, or trepidation of what might come next:

Still, thou art blest, compar’d wi’ me!
The present only toucheth thee:
But Och! I backward cast my e’e,
On prospects drear!
An’ forward tho’ I canna see,
I guess an’ fear!

And two hundred and thirty years (and five months...I checked) after those words were written it would be all too easy to lose myself in past regrets and future fears.

  • Woe is me, my prediction on gold’s downside in early April hasn’t materialized, I’ve missed out on stock winners.
  • Woe is me, the fear and pressure, make the right prediction about the future of gold else suffer humiliation and pain.

Write them down and the neurosis becomes both clear and ridiculous. The person who tries to call the detailed price moves in something as fickle as gold is on a fool’s errand. Foolish I may be, especially about the short-term, but the real money is made by getting the big calls right, not the details. Gold’s going higher, name your own price and timescale, be long the sector.