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Gold: A Sucker's Paradise

Ron DeLegge

The Great Gold Crash of 2013 is one of this year's biggest investment themes the gold experts never saw coming. And most of them, after being completely blindsided, are still in complete denial.

Look no further than Mr. Know-it-All himself, Peter Schiff. Here's what he said on June 11, 2013 in a interview with CNBC Futures Now:

"Gold can certainly make a move up to $1700 or $1800. When the world figures out the position we're in, it's gold that's going to the moon."

Since then, gold prices have sunk another 7.2% and it's worth noting that this is the same Mr. Schiff who on Feb. 13, 2013 said in a MarketWatch report he was sticking to his $5,000 per oz. gold forecast. And before that, on Dec. 6, 2012, Schiff told Yahoo! Daily Ticker that "gold was still in an uptrend."

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To be fair, Schiff is not the only gold expert who's been long and wrong about gold. Mr. Schiff is joined by a venerable list of other "smart money" guys, that remains bullish on various gold linked assets. This includes David Einhorn, Dennis Gartman, James Turk, John Paulson, James Grant, and Marc Faber.

For the rest of the world, (not the one with its ostrich head buried in the sand, the other one) it's important for you to understand a few gold facts:

1) Global gold investment demand is down 68% over the past year. (Source: World Gold Council, Q2 2013)

2) Gold has already met the generally accepted definition of bear market, with it 31% decline from 2011 peaks.

3) Gold and other precious metals are in the midst of a severe technical downtrend. 

4) Gold is underperforming every major asset class, including long-term Treasury bonds which have been horrible.

5) Gold manipulation or not, being short gold or completely out of gold, has been the right place to be.

Charting Gold

Over the past two years, gold has been a sucker's paradise. The chart below shows how gold, as tracked by the SPDR Gold Shares (GLD), has had at least 17 notable false breakouts since 2011. And each one of these false breakouts has inflicted financial damage on suckers who bought gold mistakingly thinking a bottom was in place.  

Profiting from the Gold Crash

Contrary to what the very wrong gold experts have said all along, the ETF Profit Strategy Newsletter, since early 2013, alerted its subscribers that the real money in gold, silver (SLV - News), and miners would be on the short side.

Besides troublesome charts, we observed incredible market distortions between the relative performance of gold versus other major asset classes. These dislocations were (and are) especially pronounced in gold mining stocks (GDXJ - News).

In our #Timestamped Weekly ETF Pick from Feb.14 we wrote:

"Despite a modestly rising stock market, the Market Vectors Gold Miners (GDX - News) has lagged both the broader U.S. stock market along with the SPDR Gold Shares (GLD - News) by a very significant margin. At present, GDX trades around $41.50 and is well below both its 50 and 200 day moving average. Buy the Direxion Daily Gold Miners Bear 3x Shares (DUST - News) at these levels. A double digit slide for gold would likely translate into a 20%+ loss in mining stocks. This scenario offers some big upside potential for bears."

Since mid-February, DUST has gained 59% and in that same report, we told our subscribers to buy JUN 40 GDX put options at $190. In early June, we bagged a +525% gain in those GDX puts by selling them at $1,200 per contract.

Looking ahead, our examination of precious metals points to a very high profit opportunity for investors and traders who are 1) on the right side of the market, and 2) who are correctly positioned in the right investments.

The ETF Profit Strategy Newsletter uses technical, fundamental, and sentiment analysis to keep investors on the correct side of the markets.  We offer actionable trade alerts and since the beginning of the year, 74% of our weekly ETF picks (through the end of Q3) have been winners and 525% was our biggest gain.

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