Not too long ago in early Jan 2013, Gold was still the must-have asset in every person’s portfolio. After all, it went up for 13 STRAIGHT YEARS (13-year bull market) from $250/ounce to $1,800/ounce by late 2011.
It was the SURE WIN investment for 13 years, so much so that everyone and anyone was buying… from billionaire fund managers to the uncles and aunties on the streets. Companies like Gold Guarantee and Geneva Gold were so confident that Gold had to keep going up that they offered too-good-to-be-true offers to gullible investors.
Even the professionals from CNBC were projecting that Gold would go to $2,000 and even $2,500 as money printing by world governments would create hyper inflation and maybe lead to the collapse of the financial system. Gold was the safe haven and the perfect hedge!
For the last 3 years, during every batch of my Wealth Academy program, my students would remember me saying that Gold was a bubble that was ready to burst. I had no idea WHEN it would happen but I knew it was going to happen really soon. I taught them how to read trends and to know exactly when the Gold trend would reverse (using moving averages and support/resistance) and take advantage of Gold’s collapse by shorting Gold.
It did not take a genius to figure it out! After all, the moment an asset starts to get bought by everyone on the street — like the aunties and uncles, and is believed to surely go up, it is a clear sign of a bubble ready to burst.
The Bubble Bursts
Sure enough, in Feb 2013, the downtrend in Gold was again confirmed by the 50 DMA crossing below the 150 DMA (a downtrend signal) and gold prices breaking below their key support levels. Since then, gold prices have plunged from their highs of $1,800 to $1,200 per ounce.
I have been making a small fortune shorting Gold by shorting the SPFR Gold ETF (GLD) and using the Proshares Short Gold ETF (GLL). I hope some of you have also been profiting from Gold’s collapse. And for those of you guys who were holding Gold as an investment, I do hope that you have sold everything already. I still remember a student of mine who asked me my opinion of her thinking of buying gold for her children’s long-term savings plan. I told her it was a big mistake. Thank goodness she dropped her plans.
How Low Can Gold Go?
You can imagine that the most common question I get asked now is… “How low can Gold prices fall to?” Well, the last time Gold was in a bear market (1980-2000), the bear market lasted 20 years and Gold fell from $700 to $250 per ounce (65% decline). So, do not be surprised if Gold falls from $1,200 to $630 per ounce over the next decade or so.
If you look at previous bubbles in US real estate, oil prices, Dot Com Bubble (Nasdaq), they all ended AT LEAST 50% below their peaks. That would place gold prices at $900 at the very least (down 50% from their peak of $1,800)
My Short Gold Strategy
Now, let me share with you how I am playing my Short Gold Strategy.
Now that my Short Gold Position is already a +29.83%, I need to PROTECT MY PROFITS. Also, after gapping down so aggressively for the last 6 days, it is likely that prices will go through a relief rally before plunging lower. This relief rally will likely eat into my unrealized profits.
My strategy is to tighten my stop-loss to just 1-ATR (average true range) from the current gold price. So if Gold rises by just 1-ATR, I would automatically buy back and cover my short position and take my profits. I would then wait for Gold to rally higher to hit a resistance level and when it plunges, re-enter a new short position to ride the next plunge downwards.
I see this as just the beginning of a long-term bear market in Gold but will not hold my short position for the long term. Along the way, I will short rallies and cover my position when the selling is over-extended. I will keep repeating this process.