Over the last 12 years the actual Gold market saw one of the biggest bull markets ever. I remember rare metal prices in 2000 across the 280 level and peaking across the 1900 level just on the month ago. You can view the entire progression from the upswing in that monthly chart involving gold prices. Notice the effectiveness of this market, there's only several down months over the entire length from the bull market. The actual war, decline in economy and some other fundamental factors were there primary catalysts for the start of this rally.
Similar to things in existence, everything has in life has to an end plus the bullish gold market isn't an exception. It appears which the economy is starting out on the rise again, oil is realizing some weakness plus the housing market is starting to become bullish once again. All signs point to a bearish gold cycle that may end up erasing most of the gains that we saw during the last several years. Everybody knows markets drop a lot faster than they rise so there will be a very quick price correction inside gold market. You can view in this chart some different support amounts that gold should go through, but if you ask me the correction would bring back prices for the low hundreds over the following 2 years.
The other stock I'd prefer you to focus on is Newmont Mining, which is a different large gold player and is also part of the actual GLD ETF. These are both stocks that we are using for our relative strength deal. Notice how both stocks almost just like identical when analyzed on the bar chart. Take into account that you want to discover the closest correlation possible.
Check out this chart involving Gold Corp, this is one of the biggest stocks inside gold sector and is area of the GLD ETF likewise. You can tell which the stock is next along with all of those other sectors almost tick for tick. Our job would be to find two stocks inside sector that are highly correlated, this can help decrease risk and increase income when applying relative strength strategies to two separate futures. You want to discover the two of one of the most correlated and carefully traded stocks easy for the strategy to figure best.
Because the rare metal market is this kind of large and popular market you can find dozens of stocks and a few great ETF's that you just correlate over 90 percent with the spot gold prices. This means that you don't need to buy or advertise gold bars or perhaps open a futures account to reap the benefits of this down development. Take a go through the following ETF of which correlate strongly using gold prices. It's hard to assume correlation getting any closer between your cash market as well as these stocks.
Once you identify two very carefully related stocks it's time for you to decide which one you wish to see and which one you wish to buy. The rules have become simple in that regard. You sell the weaker from the two stocks therefore you buy the stronger from the two stocks, it really doesn't get virtually any simpler than of which. Just line the two stocks like Used to do on this chart and pay attention to which one is down the best percentage out of your two. In this example you can view how Newmont Mining is down around 30% while GG investment is down no more than 22%. You would initiate a protracted position on GG investment and initiate this short position on Newmont Mining.
The last and the most important step is in order to equalize your positions so that the stock going up plus the stock going along have equal or as all around equal exposure as you can. The last thing you would like is disproportionate gets and losers on this type of position. I've done several tutorials on equalizing positions and you will find them on MarketGeeks. com or perhaps on our video clip channel.