Heads-Up on Gold and Silver Stocks

As mentioned in prior posts, I began blogging on this developing Gold and Silver ETF Allocation System via the "CAPS System" on Motley Fool's site, fool.com. Due to the scoring-system used at CAPS though, I am making this blog the primary location online where I will document my progress refining this System and its performance in the market. This entry below was originally posted April 17, 2007 @ CAPS. I've copied it here to provide a complete history to the reader who wishes to research my Allocation System development over time and confirm the transparcency of my process. One can obviously view the original entry from that point in time via my CAPS blog there but I encourage one to primarily follow my Allocation System via this blog, Greham's Day in the Sun.


Although it is too early to know for sure and attempting to make predictions such as this is usually hubris, if current trends in the Precious Metals markets continue to closely mimic their behaviour during the most recent cycle in this allocation system, one would expect to get a signal to sell Silver entirely by or during the first week of May. Within just 10 to 14 trading days from now. Odds overwhelmingly favor this forecast being wrong just given the likelihood that a mere mortal can divine market actions that the "best and brightest" on Wall Street can't get correct a majority of the time. However, given some similarities noticed so far, I thought it would be fun to document this early, attempting to be as transparent as possible about my learning process here.

Also, if the next signal is anything like the previous 3, the signal will only come within just a few days at most before a substantial correction in the metals and in particular, the stocks of metals miners. Therefore, I thought giving a little early-warning signal now might be helpful in the context of CAPS and the time it might take for any players following the Precious Metals stocks to find the warning here. If they have even found me yet here @ CAPS (doubtful).

The Allocation System, if it indeed does generate this signal, will move the hypothetical investor 100% to Gold from currently holding both Gold and Silver. Both Silver and Gold would be expected to correct but Gold should decline less severly than Silver if history holds-true once again (this, I feel quite confident of). As mentioned in earlier posts, this system is intended to keep the Precious Metals portion of the investor's portfolio 100% in either Silver or Gold or both but more aggressive investors may also want to follow this system to see if it accurately helps them identify when to take profits in the ETF's or mining shares and move somewhat--or entirely--to cash for a brief period of time. At least to take profits on some of their positions maybe or reduce leverage or risks?

I would expect the shares in Mining Companies most often followed and traded by investors bullish on the Precious Metals to correct notably upon the next sell signal. They are usually more volatile than the bullion ETF's, GLD (or IAU) and SLV. Although the depth of the decline this time might be less severe, interested investors can go look at the price action in this sector during each of the last three corrections to get an idea of what we might expect. Each of these 3 corrections have been short but sharp, lasting roughly 10 to 14 days at most and having begun on the following approximate dates:

August 31, 2006

December 4, 2006

February 21, 2007


We'll "talk" in a few weeks and pick-apart this early prediction then.