Gold: Historic Volatility = Historic Opportunity

The government is trying to restore confidence in the markets, but they have an extremely difficult chore. The coronavirus and the global economic reaction to it have led to an economic collapse. Early government intervention in the markets had little, to no, effect. News of the latest US $2 trillion foray attempt to restore confidence appeared to have a brief effect as stock indices raced up, but it appears to have been a short-term effect. We believe precious metals are massively undervalued and are putting in a bottom. Incredibly low priced, metals offer an excellent buying opportunity at these levels.

Gold

We use the Variable Changing Price Momentum Indicator (VC PMI) to analyze the markets, including gold. On the left are the data for day traders. We are looking at $1733 as the Sell 2 level. Sell 1 is $1683. The average price is $1649. The extreme level below the mean is $1600, and the Buy level is $1565.

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Courtesy; TDAmeritrade

The market traded below the average price of $1627. We have been building what appears to be some kind of resistance as we approach the $1649 level, which is the average price for today. It has been the average price for the week. The price coming into the daily mean, met the target from the buy signal that was given at about $1616 last night at about 4:30 am. I was looking to pick up new longs from a correction to $1600. The artificial intelligence told us that even though the market traded below the mean, a bearish momentum, the market coming down to a low of $1615.20 was enough to attract buyers. Artificial intelligence defines where the support is and where the highest probability to enter a trade is located.

The average price is a 50/50 standard deviation, so the market could go up or down from there. Therefore, it is not a good place to enter the market. You want to enter the market at a buy or sell 1 or 2 level, which have 90% or 95% probabilities of reversions to the mean from those levels.

We are long and have been buying, particularly derivatives, such as JNUG. There are so many incredible opportunities right now. For those who are in shock, particularly in relation to gold-mining shares, which collapsed 50% or 60%, try to step back and view this as a tremendous buying opportunity. We are getting $100 and $150 daily fluctuations. It would not surprise me to see $200 or $300 moves in short periods of time.

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For day traders, this is probably one of the most exciting times in using these instruments. When all of the leverage in the market collapses, in the equity, interest rate and in every market, is forced out, then the market gets set to form a bottom and rise again. Nothing really has changed since 2008 in relation to fiscal policy, debt, and the manipulation of the economy that created a false sense of a strong economy. It never made sense to me how the economy can be sound when you have so much debt compared to GDP. The amount of stimulus that was used in 2008 did not really filter into main street. Most of the money ended up enriching corporations buying back stock or enriching CEOs. It did nothing to help rebuild the economic infrastructure destroyed in 2008. Now we have a deeper problem. The amount of money that has been lost in the equity markets is about $20 trillion. The energy markets have collapsed. Every sector has been deleveraged. This country expanded leverage exponentially since 2008. If you leverage one dollar to $100 and you get a 10% correction on the principle, you are going to be wiped out unless you have the money to make up the difference. The world, in effect, went into a margin call. President Trump did a good job of selling the stock market. Forgotten Americans became alive and activated this populism. Unfortunately, that kind of awakening without education can be devastating.

If you have never experienced a collapse like this, just think of it as the greatest opportunity of a lifetime. Once the dust settles, levels are going to return to reality and to sound economic value. Especially if you are a Millennial, this could be the opportunity of a lifetime. If you thought you missed the market; you haven't missed anything. Some gold mining shares are down 60% or 70%. Based on the rubber-band effect, you can only stretch the market down so much before it breaks or it recalibrates. Gold mining shares are going to recalibrate.

Remember that some of the traders in the commodity markets are institutional investors, like JPMorgan. Many of these big players took the short side of the market for years. After 2008, they began to manipulate the paper market in gold and silver by selling short. Regulatory bodies allowed this to occur and allowed the destruction of demand to occur in the mining sector. These short-sellers or predators have driven the price way down, thereby destroying mining companies, regardless of their fundamental strength. Whether intentional or not, this was the effect of so much short-selling.

This is a devastating crisis for blue-collar workers and low-income families. But there is also a great opportunity here if you are willing to do the research, and take advantage of some of these incredible bargains in the markets. I feel fortunate that I have endured this crisis and the corruption that preceded it. The overleveraging had to come out, and it did. The coronavirus was the catalyst that ended the overleveraging and massive short-selling in the precious metals and other markets. In 1971, when Nixon took the US off the gold standard, it began the decline of the US empire, since the government could then just print money whenever they wanted. Fiat money is just based on trust in the government and it is a big mistake. Now they must prove their credibility. I have no doubt that we are going to see staggering stimulus packages. $2 trillion is a drop in the bucket. Try five times more than that; then we might be reaching an adequate number to fill this void, let alone the future challenges as we try to get people to go back to work.

Please do not panic. Use common sense. Protect your family. Look for the opportunities that are going to be presented. One of the things that made me feel very optimistic during this changing paradigm, is that it is also showing a light at the end of the tunnel. These numbers are deep depression numbers compared to the 1929 crash. One thing that is going to make a difference, which we did not have in 1929 is modern communications. We have a virtual economy, in a way. It is going to change the dynamics of moving forward. This might be the shift that will transition us from the old to the new way of doing things; forcing us to embrace technology to its ultimate extremes in research, analysis, and how we work. Technology is going to provide us with the safety net that we did not have in the 1930s. It is going to create new businesses. Schools are going to change and embrace virtual education. The ways we socialize may change. It is time for society to embrace the future--and we have no choice.

Gold at $1700 is trading at a huge premium in relation to gold mining shares. In the gold mining shares, the high level of leverage used by traders in the triple X instruments, such as JNUG and DUST. I trade them but make sure you are equipped to trade them. You can open an account at some houses for just $5,000, but be aware that trading futures involves high risk. Be aware of the amount of leverage you will be taking on. You need to educate yourself about options and futures, about delta and options, and so forth. You can take the initiative to change your life for the better.

When a crisis like this, a black swan, hits, it reveals weaknesses in the system. A lot of traders were highly leveraged, and they were hammered by this crisis. Leverage can be your friend or an enemy. You need to be aware if you are trading futures, what your leverage entails beyond your initial deposit. The volatility in the markets, in general, has expanded exponentially. The assumptions you had before trading futures and managing your risk, no longer apply. You have to reevaluate your risk and money management, especially if you are a large trader doing volume. Trading 10 contracts now is like trading 100 contracts before. So you must recalibrate.

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The price of these gold mining shares is based on an underlying index, such as JNUG, NUGT, GDX or GDXJ. I am working on these indices, which I will share with you soon. They are incredibly oversold. We can find some amazing opportunities in the metals, but that volatility can be your friend or enemy.

Gold trading above the average price today of $1649 gives us a bullish trend momentum, with a target above of $1683. Since the market is trading above the average price daily and the Sell 2 weekly, means that it is breaking out on the weekly signals. We are going to be looking at the monthly signals if the market breaks out. If the market trades above the Sell 2 weekly, then we go to the monthly chart and the yearly chart.

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The monthly numbers change once a month. The yearly changes once a year. The market met the target of $1664, which is the yearly average as well as the monthly average of $1655. It is a critical point. The market got up to that area, and the VC PMI said we could see supply come into the market, which then activated a short signal. Gold then came down to the mean and activated a bullish trend momentum. The daily, weekly and monthly numbers are very close together, which provides powerful levels to enter and exit the market.

We do not recommend straight stops since the market takes those out. We use the 15-minute bar on the close.

If we spike into the $1803 level, we are going to rest and watch to see what happens. Or we might hedge with either an option or a derivative.

We trade derivatives, such as DUST and JNUG, so we can avoid the risk of margin calls. We can hold them, trade against them, synthesize them, and we also use options. We are very bullish on gold overall. With this underlying support, we are looking for a more aggressive stimulus process, which the market will anticipate.

Be careful wishing for gold to go to $10,000. I would hate to see the status of the world economy if gold is at $10,000. It would mean hyperinflation or the complete collapse of the economic system for us and our children. Use your common sense, educate yourself, and take advantage of one of the greatest opportunities in the history of the US and of the world.