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I’ve received a number of emails asking me about my gold position. My answer is still YES, I still hold both Goldcorp and XGD (iShares Gold).

Is it down? Yes, it’s down significantly. Will I sell you? No, I will sell 1/2 of it when Gold reaches 1,200 — it could take a while.

Am I just being stubborn? Maybe, but here’s a statement which I’m very much inline with

Julian Phillips, an analyst at GoldForecaster.com, ahead of the Fed announcement:

“The factors pushing the price down are not substantive enough to change the trend of the gold price,” he said in emailed comments. “Only a sound dollar, healthy global economic growth, low inflation, confidence in the world monetary system will change this trend, but then this is the sort of thing dreams are made of.”

As per my previous posts I’ve been researching a new day-trading method. One of the key patterns I’m researching is a mean reversion system (still discretionary). Every mean reversion system has to rely on some form of deviation indicator and a filter – the most common deviation indicators are RSI, bollinger bands, keltner channels, etc… I have developed my own proprietary indicator but you don’t need to, just pick one that you feel comfortable with.

In addition to a deviation indicator, you will need a filter, in this case I will use candlesticks and volume. The idea is to trade a bottom reversal (outside the bands) and close at the mean (middle line) – you can get more creative here  if you wish, for example, close 1/2 of your position at the mean, move the remainder to break even and let the remainder run, possibly to the upper band.

Here are some examples of these trades (click images to enlarge)

The chart above is a 10 minutes chart of SGP. Note how the stock gapped down outside the lower band on low volume, it then consolidated by displaying some nice bullish/indecision candles. The buy signal was the 5th bar with large volume – that’s where buyers stepped in.

Exit – sell 1/2 or the whole position at the middle band (red line) and the remainder you could either trail below the previous bar low.

One last thing, in order to reap enough profit you need to select stocks with enough daily volatility. I suggest a minimum of 4% on average over the last 10-14 days … It will give you a decent risk/reward ratio. These trades are out there every day, just go hunt for them.

Good luck!

Folks, this has been one of the worst months so far this year. Although I was very very busy at work I take responsibility for my losses. I had a 5.9% drop in capital in July and my positions are down another –12% so far this month, not good. The bad results in July came from being on the wrong side of the market pictured by the 20% Win rate, as opposed to my 50%+ monthly average and also risking 1.6% of my account on average.

Here are my July 2008 results. I’m still up for the year but not proud of my discipline this month.

Message to myself: RISK CONTROL !, RISK CONTROL !, RISK CONTROL !, RISK CONTROL !

For future review and record, this is how the Dow Jones has behaved over the last months:

And, just to wrap up my monthly results post, here’s a monthly chart of the Dow Jones Industrials. Note the drop below the blue bands (my proprietary code indicator BTW) – This drop means lots of weakness ahead, after a short dead cat bounce to the red line (or less)… Market could revisit the 10k levels, scary!

Where’s Gold today?

Where are we now? I feel that this blog has been focused exclusively on Gold but that is not true. I’m currently very busy at work and most importantly researching some new trading strategies. I already have a position on both GoldCorp and Gold iShares XGD.TO and although is down at the moment I’m not too worried. My new strategy is a day trading strategy and I’m currently evaluating different charting platforms, order execution tools and most importantly backtesting and validating my concepts – could take a while. Not to say that I’ve been very busy at work, phew!

But let’s go back to Gold – first of all, I’d like to point to a fantastic article/post written today by Charlie  Bottle at Seeking Alpha, I strongly recommend, here it is.

Few key points in the post:

Summary of The Case for Gold by Charlie Bottle [via SeekingAlpha.com]

I expect gold to continue to appreciate substantially in the medium and long term, with strong chances of moving in a sustained fashion above $2,000 within the next two to three years.

There are perhaps about 130,000 tons of gold above the ground, with about half in jewelry, 40% in bars and coins (of which 30% with central banks and 10% with individuals) and the remaining 10% are in dental and industrial applications.

The total annual demand of gold is currently just under 4,000 tons and breaks down roughly as follows:

• Industrial and Dental: 400 tons (10%)
• Consumer: 3,600 tons (90%)
  o Fashion jewelry: 800 (20%)
  o Investment jewelry: 2,600 tons (60%)
  o Investment (bars and coins) 400 tons (10%)

This demand far outpaces mining production of 2,600 tons, and is met by the following supply:

• Mining: 2,600 tons (65%)
• Net central bank net sales: 800 tons (20%)
• Scrap: 600 tons (15%)

Demand growth should accelerate fueled by the need for a hedge against increased inflation, and against ongoing political and financial uncertainty, as well as growth in emerging markets middle class income.

Gold as an inflation hedge and insurance against political and financial distress

One of the key arguments that caught my attention was this:

For example, the Qatar Central Bank quadrupled its gold holdings in the first quarter of 2007. It didn’t have much to begin with but now it has more - but not nearly as much as it had back in the 1980s according to World Gold Council statistics.

Other related posts:

• Is Gold an effective edge against the US Dollar? by Brett Steenbarger [via TraderFeed.com]

Gold

Looking at the daily chart for the Gold futures it looks like the bullion currently sitting at support. It has been dropping hard since the last two weeks.

The next chart is the weekly chart also with a regression channel. One fact to notice here is the decreasing volume, which “could” indicate the selling is slowing down. Also, as I said during my last analysis, from a weekly perspective the pullback is completely normal.

Silver – I don’t normally perform analysis on Silver but here we go. The chart for silver is looking similar to Gold, except that it is slightly more bullish on a daily basis. Signs of a possible pullback are now evidenced by the narrowing candles and also volume starting to slow down, see charts below. I would close any short positions at this point.

Crude Oil – Crude oil looks very oversold to me and I would close any short positions at this point. Please see the daily chart below. The bands are an excellent tool and demonstrate how they have contained the movement in the past. Oil is now outside the band but the selling has been slowing down. Note the slower volume and also the candles how they are getting smaller. It could bounce!

That’s it for tonight folks – wish you good trading over the next few days, very wild and volatile.