I have updated my precious metal timing model for the latest release of money supply. Before I get into the model results, I want to provide a some housekeeping items. Considering the announcement of QE3 or
QE∞, I will adding up to $10 billion a week to estimated money supply to account for the expected $40 billion/month in QE. I plan on doing this indefinitely or until QE∞ ends.
With that said and as I stated yesterday, I remain on sidelines. I still continue to hold positions in gold and precious metal stocks positions representing prior gains. Despite the apparent euphoria towards gold, silver, and other commodities, I am sticking with the discipline, noting that the timing model remains in a highly negative territory. As of the moment, the 6-month model is at a 2.5 while the 1-year measure is measuring in at nearly 0.8. Looking at the historic averages, the Phily Gold/Silver index strongly underperforms the base-and-hold case when these measures are observed. Here are the updated models.
6-month model
1-year model
Although the trader in me would want to play the short side here, a number of items are keeping on the sidelines. The question you may be asking where I would get back into the precious metal stocks. A number of things would have to happen for this to occur. For one, a precipitous drop in the precious metal indexes may compel me to up my exposure once again. I have also modeled a number of scenarios through the end of October. Assuming a continual $10 billion increase in money supply and a gradual seven percent decline in gold prices would result in the timing model moving back into a buy mode. At that point, I would look for a sign of strength to jump back in.
No comments:
Post a Comment