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Simple Gold Strategy Says "Stand Aside"

Hotep G&G Readers,

When this indicator says, "Buy," gold compounds at 35% per year. When it says, "Stand aside," gold decreases in value.

For most of the last 12 months, this indicator has said, "Buy." It's been the right advice. It caught the huge gains of late last year (up three straight months by 4.9%, 4.7%, and 8.0%). And it caught this year's best months.

Take a look:

Month Signal Return next month

Jul 1, 2009 Stand Aside -1.2%
Aug 1, 2009 Stand Aside +1.7%
Sep 1, 2009 Buy +4.9%
Oct 1, 2009 Buy +4.7%
Nov 1, 2009 Buy +8.0%
Dec 1, 2009 Buy -0.1%
Jan 1, 2010 Stand Aside -0.9%
Feb 1, 2010 Stand Aside -1.9%
Mar 1, 2010 Stand Aside +1.6%
Apr 1, 2010 Buy +3.2%
May 1, 2010 Buy +4.9%
Jun 1, 2010 Buy +2.3%
Jul 1, 2010 Buy negative so far
Aug 1, 2010 Stand Aside ?


The indicator is embarrassingly simple… but really effective.

The idea behind it is: You want to own gold only when it is in a bull market. But how do you know if gold is in a bull market? Here's how I define it.

Gold is in a bull market if it is going up not just in terms of U.S. dollars, but in terms of the four major currencies (the U.S. dollar, the euro, the yen, and the British pound).

Specifically, if gold is up versus all four currencies at the end of a month, you want to own gold for the next month.

If gold is down against even one currency, it's not in a bull market. Whether gold is down in just one currency, or down in all four currencies, the result is the same: You lose money in gold the next month.

It appears gold will end July DOWN in all four currencies. If you want to trade this indicator, you should be OUT of gold for the month of August if you are a “SHORT TERM” trader… This indicator says, "Stand aside."

While this system has proven to be an effective system for trading gold, it doesn't mean you need to sell all your gold now especially if you are a mid/long term trader of gold.

This system will be in and out of gold a few times a year. It is a trading system, which shouldn't have much to do with your long-term gold holdings.

On the other hand, if you don't own gold yet, you might want to wait for this system to signal "buy" again… If you do, you'll be buying into what's historically a moneymaking time for gold.

Gold doesn't look great in the short run… My Simple Strategy says gold could have a rough month in August. The recent gold price trend isn't good.

Big falls in the price of gold are typical in major gold bull markets. A 30-50% drop is not out of the question.

In my opinion, it's better to wait for gold to bottom and start an uptrend again to buy… Instead of trying to catch a "falling knife," wait for it to hit the ground and settle, and then grab it.

In short: Yes, you want to own gold for the long run. But based on the Simple Strategy and the trend, the short run you might want to hold off until it bottoms before picking it up again. Trade accordingly.

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Asante Sana (Thanks)

Gary Gray
Tax & Financial Consultant, RFC
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