Monday, January 11, 2016

Three letters:: GSR. 3 words: Et Tu Brute ? GSR Profit Assassin ?

Betrayed by a beloved myth of the GoldBugz community, the Gold Silver Ratio!

Seem like lawyers, gunz and money are needed to survive the scum and villany found in the markets of the Precious Metals Complex.  Now we learn the GSR has been selling us down the river as well, as tool used to subject us to the punishment of our capital resources.
There seems to be no reliable correlation btwn the movement of a Gold Stock Index and the GSR.
     This give credibility to the thought that is no force compelling any third measure has to respond in such and such a manner to another set of measures in Ratio.  Hence, whilst the GSR can vary to extremes to the up and downside of the Mean, there is no force compelling either Silver or Gold to react in a pre-conceived pattern, despite all the pumping to the contrary.
A case can be made for Mean Reversion, often accompanied by claims of substantial profits if, as and when Mean Reversion occurs. 
     Lets look a half of the previous chart:
 Nothing is any clearer.  There are times where the correlation exists in positive mode, and others that are not clear at all.   Were any of us to risk our capital on this GSR, our chances of profit would be random at best.   Were we to be Ultra Long holders, we would be stopped out virutually every time.

     What about the GSR could help us profit from movements in the Precious Metals Complex ?
   Now if your alert you see at the earliest point in the chart of the TWO RCM ETR's, Gold and Silver, that a BLUE trendline alerts you to a point where the ETF, GDX goes from Decline to Consolidation.   We see the Three Red Lines outline the Consolidation of this GSR, and when it breaks out upwards, the GDX has resumed it's decline.  In fact when this GSR gaps over the top black dotted trendline, the decline of GDX is in full swing.   These are three examples of how to use the GSR, in the issue of discovering "Trend Change".
However if you did not profit from any of those examples, GSR may be a Profit Assassin for your method of trading, unreliable at the very least, and downright dangerous when used as a sole timing guide.
    So what can you do?  My take is to use GSR as a secondary validation tool, not a primary timing or trend change measure.   Nothing "HAS" to force prices in any particular direction, especially in intervened markets.
    From what I see, the indiscriminate use of GSR exposes Gold Bug investors to uncessary risks, of holding Precious Metals Complex stocks when not justified by trends, changes or volume dynamics.  In addition to a number of GSR's I calculate, they are used in combo with at least 4 other measures before I call a Trend Modification, pause or change.   You can access the alerts of these changes by signing up on our alert list or subscribing to 
The RECAP Report or PEAK PICKS.   My ASAP ALERTS list is free of charge.