Dear Member,
New Subscribers: We have a lot of new subscribers, so welcome aboard. The very best thing you can do right now is to make sure you have read the operating manual and that you’re ready to trade. A new trade can come any minute.
That said, let’s get right to the markets. First, a note: One of the important lessons I hope to convey in this service is that there are times to be buying, there are times to be selling or going short, and there are times to simply sit on the sidelines.
Indeed, sitting on the sidelines waiting for the next ripe opportunity to buy or sell is as important a strategy as any other. All too many investors lose money because they constantly want action.
For instance, right now, there’s no two ways about it: Gold, silver, and the other precious metals are in limbo. Gold is stuck between support at roughly $1,270 and resistance at $1,300 to $1,310. Silver is stuck between $19.70 and $21.00. They and other metals are in no-man’s land, where trading will just chop you up to pieces.
That said, the service remains long a small position in ProShares UltraShort Gold (GLL). Hold and maintain a protective sell stop, good till cancelled, at $95.86.
On July 11, you were stopped out of ProShares UltraShort Silver (ZSL) when it hit my risk stop price of $98.77, for a minor loss. Not to worry. Losers come with the territory. You can’t avoid them. The important point to remember is to keep your risk tightly managed, and you did that.
The keys to watch right now are the following: If gold can soon break support at the $1,270 level, we should start to see the next leg down that I am expecting. Importantly, my models tell me there’s one more decline coming before gold finally bottoms. So stay alert, I will want to maximize the profit potential on that kind of move down.
It’s pretty much the same picture for silver. I expect one more leg to the downside. I will likely re-recommend purchasing ZSL, but wait for my signal.
The fundamental background for the precious metals remains the same: Long-term, very bullish. Intermediate- and short-term bearish with a bottom coming into view. Also keep your eyes on Europe, where I soon expect its sovereign debt crisis to deepen, which contrary to most investors and analysts’ opinion, at this point in gold and silver’s cyclical outlook, remains bearish for the metals.
That will change going forward. Europe’s crisis will become very bullish for the metals. But that time is not here yet.
Now, I want to review mining shares with you.
They too appear to be approaching a major turning point.
Let’s step back in time a bit, first. Gold investors who didn’t heed my advice over the past couple of years lost as much as 38% as gold tumbled since September 2011 — while those who didn’t follow my advice on mining shares lost DOUBLE that, as much as a whopping 78%!
You can see it right here in this chart I have for you of the Market Vectors Gold Miners ETF.
In September 2011, I warned everyone to exit all mining shares, just days after the price of gold hit $1,920 an ounce and most mining companies also hit their record highs.
In the weeks and months that followed, the typical mining company lost as much as 63% of its value, wiping out tens of billions of shareholder wealth.
The carnage among junior miners was even worse, with the typical junior mining share losing as much as 78%.
While some juniors lost as much as 95%, dozens of other miners, such as Patagonia Gold and Mariana Gold, are seeing their shares delisted from trading and are in danger of outright bankruptcy.
This brings me to perhaps my most important warning for gold and silver investors, EVER:
Please don’t think you can just jump in and buy beaten down mining shares and make a bundle of money going forward. That’s very dangerous thinking. Many of today’s surviving mining companies will either not produce any major gains to speak of, while many others will file for bankruptcy, even as gold and silver start to soar again.
Why? There are several reasons. But let me address them in terms of the two main types of mining companies out there, seniors and juniors.
In the senior sector, many big miners have simply got their market timing all wrong. And they’re making two deadly mistakes:
First, they are now starting to hedge their gold again, thinking gold is in a bear market.
That’s going to be disastrous for them going forward when gold and silver suddenly explode higher. These senior miners are not going to be able to get back to the share valuations they experienced before, because they’ve sold forward their gold and silver at lower prices.
Second, many senior miners went on a crazy acquisition spree when gold was at $1,800 to $1,900 an ounce, buying up properties and tiny resource miners at premiums and doing so by borrowing huge sums of capital.
With interest rates rising now, the debt burdens on their balance sheets are going to crush those companies’ earnings and valuations.
Bottom line: There are very few real, sharply managed senior mining companies left that will fully participate in the next leg up in the precious metals markets.
The junior mining sector is in even worse shape.
First, many juniors also took on way too much debt at the top of the gold market to buy additional properties. Now they are finding those properties are too expensive to feasibly mine, and they are also going to drown in their debts as interest rates continue to rise.
In addition, many junior miners simply do not have the management expertise needed to navigate the next bull market in the metals. They are wildcatting speculators who simply do not know how to manage a company, and instead, are like gamblers who walk into a casino and drop all their money on a single number on the roulette table.
If the number hits, yes, they win big. But the far more probable result is that they LOSE EVERYTHING and everyone’s money in the process.
A third reason many juniors won’t cut the mustard in the months and years ahead is that many of them ventured into far flung places of the globe and politically unstable countries to hunt down more gold and silver properties.
That too is especially dangerous, as they risk nationalization of decent properties or heavy tax rates and royalties when mineral-rich properties are found.
In today’s age, where social and political unrest is due to rise sharply all over the world, as I’ve previously showed you with my work on the Cycles of War, operating in politically unstable countries can be deadly for small and even for large mining companies.
With that in mind, I want to give you the names of 10 mining companies I would not touch with a 10-foot pole. If you own any shares listed in the table, DUMP them now and don’t look back.
They’re either too heavily indebted, have too high a total cost of gold or silver production, or are starting to rehedge their gold and silver reserves and resources.
For active trading purposes, for this service, we’re going to mostly trade a speculative portfolio of high-quality junior mining companies, with high betas.
That means their share prices will swing dramatically, giving you MULTIPLE opportunities to get in on rallies, then step aside during declines — and then get back in again, so you can compound your profits over and over.
One company, for instance, that I am eyeing right now is a silver producer that is producing silver at roughly $11 an ounce, all costs figured in. Another is a junior gold miner that is sitting on as much as 19 million ounces of gold at a total ownership and production cost of just $262 an ounce.
Or still a third miner sitting on as much as 53 million ounces of gold, and where it doesn’t have to worry about the increasing costs of mining or anything else for that matter because it largely sits back, lets others do the hard work, and collects a stream of overriding royalties.
I will also soon be recommending ETFs on mining shares. I am doing my due diligence on many of them now, and it looks like I’ll have a recommendation in miners very soon. So stay tuned.
Now I’d like to address some recent subscriber questions:
Bear in mind I cannot render individualized advice or recommendations, and that the questions have been edited for purposes of brevity and clarity.
Q: In the Gold and Silver Trader manual, I noticed it mentioned that the portfolio was designed for a minimum investment of $25,000. Can one invest less, say $10,000?
A: $25,000 is the recommended minimum. You can trade with less. However, you may not be able to take full advantage of all recommendations.
Q: I’ve just recently joined your service from the UK. Would you be able to recommend any online brokers that I can use to trade the U.S. ETFs?
A: I’m sure there are several good brokers in the UK. One you might want to check out is Interactive Brokers UK at: http://www.interactivebrokers.co.uk/en/main.php.
Q: I got stopped out of my ZSL position last week, and I was wondering if you think we should get back into that position?
A: I expect to re-recommend ZSL, but wait for my signal!
Q: When gold and silver finally top and it’s time to get completely out of the precious metals market, will you advise us on an exit strategy, both as to when to exit and where to reallocate our funds?
A: Absolutely! But that’s a ways off.
Q: For the GLL trade on 7/5/13 you recommended using 5% of one’s trading funds, which based on $25,000, came to $1,250. I bought 95 shares thinking you were recommending risking 5% of $25,000. I ended up buying 95 shares worth some $10,355. Did I do it right?
A: No, unfortunately, you did not. When I refer to using a certain percentage of your trading funds to allocate to a trade, I am referring to the gross dollar amount to be allocated.
Using $25,000, you are correct in that 5% would be $1,250. The share price for GLL at that time was roughly $109. $1,250 divided by $109 = 11.46 shares. You would round up to 12 shares to give you an even number of shares, which is typically easier to execute in the market.
Bottom line: The percentage I recommend is to be applied to your total capital. It is NOT what I recommend risking. That is far less and is a factor of the number of shares times the risk per share in dollars.
Q: Are you concerned with “wash sale” tax rules when re-entering positions previously traded?
A: No, the wash sale rule should never be a concern for active trading. The goal is to make money, regardless of taxes.
Q: Why not post the date and time of your last post on the Gold and Silver Trader website? This would help us to avoid having to log-in if there are no current updates.
A: Excellent suggestion. I will convey it to my back office.
Q: You forecast the euro zone will suffer a financial catastrophe. But not all European nations use the euro currency. So are there any currencies in Europe which would not be greatly impacted by the demise of the euro?
A: The Norwegian krone does look good long-term, as does the Swiss franc.
Q: I really enjoy receiving your updates and am now subscribed to all of your services. Would you mind suggesting a free site or two for charting the intra-day price action of commodities and where I can run some technical analysis?
A: There are several, but most of them are not that good. Try the commodity section of https://www.tradingview.com. You will have to register to bring up several charts and save them. But they offer a decent free service. Keep in mind that most free services are giving you delayed, not LIVE data.
Q: How do you determine the price you set for your stops?
A: It’s based on a rather complex algorithm that takes into account several factors, including support and resistance, volatility, cycles, money management rules, market signals, and more.
That’s it for now, but do stay tuned. I should have new recommendations soon.
Best wishes,
Larry
Position Tracker
Click here, or on the image below, to view our position tracker in .pdf format.
