The Million Dollar Gold Trade

Is it possible to prepare for a trade 5 or 10 years ahead of time?

It almost seems absurd to even think a few months out sometimes in the trading biz because of the constantly changing variables.  This is true for many individual stocks, but for larger markets and indices I like to try to get some insight as to what may happen a year or two or three down the road just to keep some kind of road map that helps to guide me.

I have written about gold many times already.  And strangely enough as the current breakout has occurred I have barely written much on it.  This fact alone makes a great point.  And the point being that despite the gold price breakout, no one seems to notice it much or even care that much.  But a breakout it is and I suspect 1100 to 1200 is achievable by the end of this year.

But on a bigger picture perspective where is the gold price going to go?

My general take is that the gold price should have a good shot at 1400 to 1800 perhaps going into 2010-2011.  But then it will reach some sort of first major intermediate peak that lasts maybe 2 to 4 years.  It should eventually bottom and will then start a new major upleg that could take it to 5000 or even higher. 

So the trade I want to plan for is the last portion of the gold bull market that begins after a major 50% corrective phase from the first highs (1400 to 1800 ?).

The problem is this trade is likely going to take forever to develop, but it will also probably be extremely profitable.  Take a look at the trading action in gold during the 1979, to 1980 period.  That was the blow off spike in the gold price that if identified well ahead of time could have probably made you millions if you planned for it and new it was going to occur.  But clearly the key to benefitting from that gold price advance was the ability to sit tight and be right with a winning position for as much of the run as possible.

There is ZERO doubt in my mind that we will see a similar rally to that one again.  The doubt comes in when trying to identify what year it will occur.  Maybe 2015 or 2018?  There is no way to know now.  We need lots more price action and we also need to see the first MAJOR correction in the gold price of about 50% before such a panic rally can occur with the ease of price movement that occurred in the 1979 to 1980 period.

So stay tuned here for another 10 years or so and I will send out some alerts when I think this trade is starting to develop.  I am thinking that the trade would likely be a 1 or 2 year Leap call option on the GLD.  But of course there are also plenty of mining stocks that would go persistently vertical during such a gold price move as well.  So there will be many possibilities.  But not a bad idea to start preparing for this 10 year horizon trade now as it could be the most profitable trade of your life.

Would you wait 10 years to make a million dollars? I would.

The fact is that all major major bull markets don’t just end in a whimper.  They end with wild eyed craziness.  And I fully expect the gold bull market to end that way as well.

To remind me of this trade I am going to put a 1 year annual email alert that google calendar will send me reminding me to look at the big picture of the gold market and prepare for this trade…

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