Gold has been on one of greatest historical runs of any asset class, but that is about to end in 2013, probably for the foreseeable future. The yellow metal finished higher in twelve consecutive years, outperforming most asset classes by a mile. But all streaks must come to an end, and it appears this year will be the first down year in the a baker’s dozen. So far gold is down nearly 30% for the year, it would need to move mountains to get into the green for the year. This may not be the end of the decline.
Gold has been a great alternative to currency over centuries, an inflation hedge and protection in times of war. However, today’s use of gold is drastically different. Today, investors use gold as a diversifying asset, countries hoard gold (stashing it) to offset currency losses and ETF’s have created a great deal of price variation.
The yellow metal has fallen out of favor to technicians, too. Look at the charts below and you’ll see why. A picture tells a thousand words, and when a stock falls through support levels like a hot knife through butter – well, it takes a great deal of time to repair the damage.
MONTHLY CHART
The long term monthly chart shows a target of 700, another 40% down from here! It’ll take time, but I suspect some time out over the next couple of years we’ll be right there again.
There are gains to be had on the downside for the most nimble, patient and timely trader – with a steady hand. My preferred play is the GLD, using longer term options (buying puts, selling calls/spreads on rallies).
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Bob Lang has been managing private options trading accounts for clients since 2004 and providing subscribers with guidance on trading options for income at Explosive Options since 2011.
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