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Here Is How To Buy Gold And Silver Without Getting Burned

Commentaries & Views

Over the last few days I have been getting a lot of email from precious metal investors who feel like they got burned buying gold and silver near their highs last month. I am writing this article with the purpose of helping you buy gold and silver without getting burned.


Last month when investors were rushing headlong into gold, I was interviewed by Ms. Daniela Cambone of Kitco News. Those who watch her show know that she is an excellent interviewer and is always current with what is happening in gold. You can see the interview by clicking here. In the interview, I was saying that gold was likely to come down. A few astute investors want to know how I knew that. I use proven sophisticated algorithms but you too can use some of the principles behind these algorithms. These are the same algorithms that gave the signal to back up the truck and buy gold when it was in the $600 range and subsequently gave a sell signal when gold was $1904.

Let us explore by looking at a chart and two tables.

The Chart

The timing of my subsequent call to not buy gold at that time is shown on the chart.

Please click here for the chart.

The chart is of the popular gold ETF (GLD). Please note from the chart that gold has broken 61.8% Fibonacci retracement. From a technical perspective this is negative. Now that this key support zone has been hit, it is common for a technical bounce to occur.

Support/Resistance And Money Flow Tables

At that time, The Arora Report also provided two tables to its subscribers.

Please click here for the tables.

The first table shows support and resistance zones as well as the probability of reaching each zone. The highest probability was 70% to reach the zone of $1220 - $1226. Subsequently gold fell over $60 from its high to reach the highest probability projected zone. The call was spot on. It is important to note what has come to be known as Arora’s Second Law of Investing, ‘No one knows with certainty what is going to happen next.’ Since we do not know the future with certainty, the only way of analysis that works is the use of probabilities.

The second table shows money flows by different type of investors. The table shows that based on money flows, it was evident that while the momo crowd was buying gold, the ‘smart money’ was selling.

Investors tell me that they had the perfect reasons to buy gold and silver. The U. S. was firing missiles on Syria. North Korea was threatening a nuclear war. There was concern that the right wing candidate Marine Le Pen would win in France and pull France out of euro. Since then gold has fallen quite a bit. Investors who were part of the frenzy to buy gold aggressively are now losing money. Especially hurt are investors who made leveraged bets using futures or options on gold.

These investors are now asking if they should sell gold and cut their losses. At the same time, they are asking if they should buy French stocks on the news that Emmanuel Macron, a centrist, has won the French election.

Investment vs. Trade

The first mistake I see investors making is that many do not distinguish between an investment and a trade. A trade is for the short-term while an investment is for the long-term.

If you bought gold for the very long-term, our rating is positive. Gold is likely to be higher in the very long-term. It would not make sense to sell it here. If you bought gold for a short-term trade, then it is a different story.

Right now gold is in no man’s land. However if it breaks strong support in the zone of $1194 - $1208, that will be negative.

Our ratings on gold and silver (popular ETF is (SLV)) are shown later in this column.

When And How To Buy Gold

In general, it pays to scale in tranches to buy gold when there is no bad news and nobody wants it. This way you get a lower price. Inevitably, bad news comes; everyone wants gold and the price of gold rises. Then you sell into the strength. Repeat and rinse. Just by following this simple technique you can build substantial wealth over a period of time.

Also consider buying when the smart money is buying. Consider selling when momo crowd is buying and the smart money is selling.

Core Gold Position

For those who always want to have some gold, it is important to properly size the core gold position. A profitable technique is to hold the core gold position and trade around it.

Don’t Get Too Excited

It is easy for investors to get excited based on the news. To be successful it is important to learn not to get too excited. The behavior of some precious metal investors right near the top is also common in stocks. As an example many investors are getting excited now to buy European stocks. The reason is that the French election is over and the centrist candidate won. The chart shows when The Arora Report recommended buying European stocks using iShares MSCI Eurozone ETF (EZU). My call is to wait for a pullback before buying.

Gold And Silver Ratings

The Arora Report precious metal ratings are widely used by bullion dealers, jewelers and investors across the globe.

The first cut of ratings on gold and silver at The Arora Report is generated by complex algorithms that automatically change with market conditions. Then human judgement is added before publication. Inputs to our algorithms include relationship between currencies, interest rates, sentiment, money supply, global geopolitical picture, global GDP growth, inflation in key countries, leading indicators of inflation, risk appetite, mine production and jeweler demand, smart money actions, speculator actions, and our proprietary technical indicators.

Here are our current ratings that take into account not only the rewards but also the risks. The goal of every investor ought to be to generate high risk adjusted returns, i.e., returns in excess of those commensurate with the risk taken. These ratings are designed to produce higher risk adjusted returns. In our over 30 years in the markets, one of the biggest and most common mistakes we have seen investors make is to ignore risk.

  • Mild Negative in the very, very short-term.
  • Mild Negative in the very short-term.
  • Neutral in the short-term.
  • Mild Positive in the medium-term.
  • Mild Negative in the long-term.
  • Positive in the very long-term.

These ratings are reviewed daily and changed frequently to help both long-term investors and short-term traders. For definitions of time frames, please click here.

Allocation To Precious Metals

From 2007 to 2011, Arora allocation to precious metals was 20% of the portfolio. For those who are inclined to always have gold in their portfolio, a long allocation of 2 - 4% to precious metals from a very long-term perspective at this time is appropriate.

Full Disclosure: Subscribers to The Arora Report are provided precise buy zones and sell zones as appropriate. Further, subscribers to The Arora Report may undertake short-term trading positions in addition to the very long-term generational opportunities.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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