Gold

[superfrank]

Keep buying the dips. The last fall was engineered when it threatened to go exponential. Central banks (western) will be happy unless that happens and imho there's no danger of any serious break of 1600.

[Ferru123]

You know my views on fundamental analysis, so I won't repeat them, but if there were ever a time not to invest, this is it!

There are just way too many unknown variables. I'm not sure anyone - even Frau Merkel - knows how things are going to pan out in the coming days and weeks...

If you must invest, my tip is to buy tinned food. You can always eat it if the economy picks up!

Keep buying the dips.

[andyfuller]

I listened to the weekly IG Index webinar yesterday and David Jones who takes it said he expects gold to test the $2,000 mark relatively soon.

If you go to his Twitter you can find the link to the recording and hear his views in the first 20mins or so.

[superfrank]

You know my views on fundamental analysis, so I won't repeat them, but if there were ever a time not to invest, this is it!

I don't understand you sometimes Jeff, you mock both technical and fundamental analysis yet are seemingly a devotee of trend following which essentially relies a combination of the 2!

[Ferru123]

Strictly speaking, trend following is a form of technical analysis, but a trend follower would sooner put his balls in a vice than use fundamental analysis!

And yes, I know you said 'relies on' rather than 'uses', but trend followers neither know nor care what the long-term outlook of a company is, or if interest rates are likely to remain on hold...

Fundamental analysis is a bit like betting on a horse using form analysis. Even if you know everything in the public domain about that horse, and know how to interpret that information, you don't know for sure if the market knows something that you don't (such as the possibility that the jockey will be so distracted by a brown envelope that someone handed him before the race that he'll forget whether he's whipped the horse more times than allowed)...

Jeff

I don't understand you sometimes Jeff, you mock both technical and fundamental analysis yet are seemingly a devotee of trend following which essentially relies a combination of the 2!

[superfrank]

Let's take gold as an example (a 'trending market' if ever there was one)... it has risen 500% or so in the last 8 years for very good fundamental reasons, i.e. a massive increase in the money supply funded by dubious credit and huge government deficits.

In that time there have been countless great entry points provided by technical analysis (essentially just buying the dips). You now say that it is a dreadful time to buy gold, but your reasoning is based on technical analysis because you're seeing double tops and all that stuff and thinking the trend has ended.

My argument is that the fundamentals are still extremely strong and that the bull market has many years to run yet. What makes you think you're right and I'm wrong other than technical analysis?

[Ferru123]

You might be right, you might be wrong.

Some people who know more than you or I will agree with you. Others will disagree.

I suspect neither they nor you have a clue about the known unknowns and the unknown unknowns, however.

Even if we assume, for argument's sake, that the fundamentals for gold are strong, will that be reflected in the future market price? And is it already accounted for in its current market price?

And your analysis doesn't tell me this:

A. Where should I set my stop and offset?
B. How can you be confident that this is a value bet, ie that if you made 100,000 trades using this kind of analysis, that you would come out ahead? And if you can't, is your recommendation any different to someone saying 'I like the look of that filly in the 4:30 at Wolverhampton', without being able to establish if it's a value bet?

If you haven't done so already, have a look at the 'Are you sure?' thread in the psychology section. I think you've talked yourself into being highly confident about your beliefs re. gold when there's plenty of reason to be doubtful.

If you have a look at last year's Financial Times, I bet you'll find lots of well-argued, fact-filled predictions that didn't come to pass... Search for Jim Cramer on You Tube, and you'll find more than you can shake a stick at!

Jeff

My argument is that the fundamentals are still extremely strong and that the bull market has many years to run yet. What makes you think you're right and I'm wrong other than technical analysis?

[superfrank]

I don't claim to be right Jeff, and normally I'm not trying to be, I just look for high probability trades - but you have to use some sort of judgment to determine what is high probability and what's not.

[Ferru123]

Lots of people look for high probability trades - it's partly why most of the money in the vast majority of horse races is matched on the favourite.

If you can combine high probability with high value, then great. Who wouldn't want a 90% strike rate with a lovely risk:reward ratio, and a nice, smooth equity curve? Whether it's achievable, however, is another matter... You might want to Google Long Term Capital Management, who thought that they were making very low risk trades until they lost $4.6 billion!

If you want to trust in a neat model where you work out what an instrument is probably going to be worth in the future and trust that the predictions will happen and the market will respond as you think it will, then fine. I don't think the markets are that rational, nor the future so predictable...

"If the population of price changes is strictly normal [distribution], on the average for any stock ... an observation more than five standard deviations from the mean should be observed about once every seven thousand years. In fact, such observations seem to occur every 3 to 4 years".
When Genius Failed - Roger Lowestein

Jeff

I don't claim to be right Jeff, and normally I'm not trying to be, I just look for high probability trades - but you have to use some sort of judgment to determine what is high probability and what's not.

[superfrank]

I'm not a fundamental trader (that's for long-term bets) and most of my financial trading is intraday stuff when I trade in either direction on anything, but I do have a view on fundamentals because I'm interested in economics and markets.