All That Glitters- Buying Into the Weakness

The price of gold is now trading off more than $40 per ounce, or greater than 2.5%, while the Gold Spider ETF (ticker GLD) is falling a similar amount and is trading into the low $150's. Both have achieved the targets I laid out in previous posts. More importantly though, the gold/precious metal timing models are now point to a strong buy for gold and other precious metal miner shares. Using current money supply forecasts, the current timing models are as follows.

1-year, -2.5


3-month, -2


6-month, -2.1


Also for comparisons purposes, I thought it would be illustrative to provide updated the performance figures for the timing models. The tables below show the buy and hold case for the price of the gold/precious metal miner index (here the Phily Gold/Silver Index- ticker XAU) over various times. Additionally, the tables show the historical performance of the index after timing models measures appeared similarly to what they are now.

Buy-and-Hold

	1 Week	3 Months	6 Months	1 Year	2 Years
Avg	0.26%	3.09%	6.54%	13.24%	28.93%
Median	0.27%	2.15%	4.94%	12.09%	28.76%
Max	25.37%	89.59%	88.09%	151.78%	203.74%
Min	-30.86%	-62.22%	-62.18%	-64.56%	-50.89%
Batting Avg	53.2%	56.4%	62.1%	67.1%	77.5%

1-Year Model at or below -2.5

	1 Week	3 Months	6 Months	1 Year	2 Years
Avg	16.62%	68.57%	72.80%	123.41%	178.11%
Median	16.62%	68.57%	72.80%	123.41%	178.11%
Max	23.46%	89.59%	88.09%	151.78%	203.74%
Min	9.79%	47.55%	57.51%	95.03%	152.48%
Batting Avg	100.0%	100.0%	100.0%	100.0%	100.0%

3-Month Model at of below -2

	1 Week	3 Months	6 Months	1 Year	2 Years
Avg	3.56%	11.83%	23.88%	32.66%	68.28%
Median	1.90%	7.98%	24.13%	19.72%	54.55%
Max	23.46%	89.59%	88.09%	151.78%	203.74%
Min	-2.88%	-45.27%	-12.69%	-8.33%	25.52%
Batting Avg	61.5%	84.6%	84.6%	84.6%	100.0%

6-Month Model at of below -2.1

	1 Week	3 Months	6 Months	1 Year	2 Years
Avg	8.78%	12.32%	25.66%	37.44%	87.29%
Median	6.12%	7.11%	25.63%	20.56%	83.71%
Max	25.37%	89.59%	88.09%	151.78%	203.74%
Min	-2.67%	-45.27%	-12.69%	-8.33%	25.52%
Batting Avg	90.0%	70.0%	80.0%	70.0%	100.0%

I will not go through all the figures, but the historical performance of the gold stocks following timing model results at or below similar levels far surpasses the buy and hold case. Additionally, the batting average (or the number of positive performance occurrences divided by all occurrences) in all instances is better than the base case. Most of this appears to be in a reduction in the downside risk, as observed by the minimum performance achieved across the buy and hold time frames versus the timing model results.

With that, I am buying to close the short GLD position in the Short-Trading Portfolio, as the price of gold have achieved my target. Additionally, I am adding the Market Vectors Gold Miner ETF (ticker GDX) to the Long-Trading Portfolio. I am also positioning the portfolios I manage into exposure of the gold miners.