Welcome to the world of precious metals, where the bull market will either throw you off the bucking bronco in one violent move or bore you off it with…
Last month’s blog suggested Gold was forming a new pre-summit base at $1750 – higher than its previous base camp at $1675. Can we be sure of this? Of course not. Gold has a nasty habit of dropping $100 in the blink of an eye, wiping out stop losses and returning to its previous state and price, innocently denying it left an instant trail of destruction behind it. ‘Me, no, it wasn’t me, honest Guv’. Its younger brother, Silver, inherited the more extreme genes and can be twice as destructive. If it came to a choice between fighting the Kray twins or Gold and Silver, I would get a fairer fight with the former.
A test of $1750 or $1675 is therefore not out of the question, but whilst I have been yawning daily with the continual stalling tactics around $1800, I am fully aware we are arriving at one of Gold’s seasonally strong parts of the year and so spring hopes eternal that $1800 will fall again and become the new pre-summit base.
There is no consensus amongst commentators as to which direction Gold will go next. ‘Looks like $1675 will be tested’, ‘Dollar strength could see a Gold flush to $1650’ ‘Big opportunity in Gold stocks’, ‘the COT is at bullish extremes’, ‘the intermediate low is complete’. Could be confusing, but to be honest, this is how I like it – if everyone sat on the same side of the boat, it would tip over and we would all drown. I am thankful for the contrarian views to challenge my own thinking and to keep me level-headed. Unfortunately, however, this situation keeps me suspended, non-committed in my own trading thoughts. Not wanting to go all in and wanting to keep powder dry should further falls ensue means waiting patiently for the right signs.
We have been in a relatively tight range of $1776 – $1834 for July and if we compare this with last year’s range of $1770 – $2075, it looks positively anaemic. Welcome to the world of precious metals, where the bull market will either throw you off the bucking bronco in one violent move or bore you off it with weeks of dullness. Sentiment is low and many bludgeoned precious metal shareholders have thrown in the towel already, looking for greener pastures. Barrick is 30% off its 2020 peaks and 15% off its most recent peak just 2 months ago. Pan American is the same, as is Hecla Mining and most Gold or Silver related shares. Not at all positive, is it? In fact, it’s carnage and if you consider a stock market crash could be round the corner, precious metal shares could dip even further. But hang on a minute, Barrick’s all-in sustaining costs for each ounce of Gold, for example, is around $1000 and with the manipulated paper price at $1800, they are earning shedloads of cash. Slower growth and high inflation mean a very positive stagflation environment for Gold so that is good enough for me. Whilst painful, I am sitting tight and hoping this is merely a retreat and consolidation and sentiment will indeed return and coincide with the seasonally strong period coming up.
The Charting Centre
Call me anal, but at the end of each day, I rate how I am feeling. The rating, a reflection of trading, and life in general, takes seconds and covers happiness, satisfaction, energy, optimism, focus, calm, competence and whether I feel I am growing or stagnant. When the scores are uncharacteristically high, it is an early warning system that I am over-confident and should consider taking profit and a sequence of low scores means I should take time out from trading and recharge my batteries. Trading can be an isolated experience and whilst the benefits of not having a boss (other than my wife of course) is a key reason why I do what I do, I do not have anyone to independently assess my performance or offer me constructive feedback. It is so easy for trading to muddy and dominate the waters between trading and personal life and the scores help me to reflect on where I am on the psychological scales.
Reflecting on the declining scores at the end of June and the start of July prompted me to spend a day away from the screens and I drove to Malvern, a spa town in Worcestershire, that grew rapidly in Victorian times, and which lies at the foot of the Malvern Hills, a designated area of outstanding natural beauty. My mind welcomed the different sights and sounds, my body welcomed the steep walks, and my digestive system welcomed the very tasty homemade ice cream.
The overall scores for 2021 have not been great either and whilst I could get down in the dumps about it and wallow in my own negativity, it gives me valuable data to help me with my trading. For example, if my scores are low, I know I will not be alone. It is likely the sentiment for other Gold traders will also be low and so maybe a tradeable bottom is near. If low scores are prevalent for an extended period and I am still sane, it reinforces how resilient I am and how tough my inner core is.
Coping with stressful and challenging events and the ability to bounce back from regular beatings are pre-requisite skills for a trader, and resilience is the ability to adapt and grow following these. Getting up to try again another day is the core of resilience. It is a human trait we love to see – Boxers winning rematches, football teams coming back from 3 – 0 down, Napoleon’s comeback from exile, Denmark making it to the Euro semi-finals after Eriksen had a heart attack on the pitch. LinkedIn has become the bounce back forum with every other person sharing their heartfelt backstory to overcoming tragedy or showing courage. Questionable whether that’s the right forum but we love comebacks, don’t we? The Gold and Silver paper markets give me plenty of opportunity to bounce back but it is important that my mental health and wellbeing are considered daily and addressed if I feel the need to defrag and refresh my trading brain.
The markets regularly present a new reality, sometimes less good than the one I had before, so I can fight it, do nothing but complain about what I have lost, or I can accept it and take the positives from it. I am only limited by what I allow myself to be limited by and that is my own mind. If I fail, I will just have to try harder the 2nd time. And so it is with the precious metals’ markets. Forever changing, forever presenting a different reality, forever providing a waterfall beating, it would be easy to say it is too difficult and give up. So, if fundamentals remain the same and yet prices plummet south, that presents strong minded traders with an opportunity. Of course, it’s painful but strong minded, resilient traders will only suffer the most necessary pain and will only feel the pain from the initial cut, not the subsequent cleaning of the wound.
So, how do resilient, strong minded traders operate and survive? Having sufficient capital; separating trading capital from personal wealth; not over-extending yourself and having stop losses are key risk management tools but most importantly, it’s how you, as a person, deal with losses. Keeping a level head and not taking it personally is a start. Getting sufficient rest; eating well, exercise; human interaction and sleep are the foundations for living but it is surprising how these get neglected when you are under pressure. When trading is tough, it can affect you mentally and emotionally and I make sure I diary meditation, eating, walks, bike rides and social interaction into my trading week to ensure I have a balanced lifestyle. It isn’t the challenging situations that fell you, it is the neglect of the basics – food, exercise, lack of sleep, social interaction and fun that results in you running on empty to meet these challenges.
Self-help books are essential in understanding how your mind and body work, and these are as useful for me as a trader, as fundamentals of a market or a company are. And to be honest, they are useful in any walk of life. Never be afraid to read them. I will highlight some of the useful books I have come across in future blogs.
So much for ‘Freedom Day’! The long, awaited day when I, along with the rest of the UK, can get back to strutting our funky stuff in nightclubs, coincides with our NHS app melting down in a ping-demic frenzy and telling 600,000 in a week to self-isolate. What a pinging mess. Hospitals and supermarkets not coping or unable to fill shelves due to staff shortages disrupting supply and service chains. And the solution? The government ask workers, regardless of vaccination status, to do daily Covid testing instead of isolating. Really? Is that the daily Covid testing (lateral flow) which gave my son 3 incorrect positives before a more formal and reliable PCR test proved these to be incorrect, or is that the more formal and reliable PCR test, that is now acknowledged to throw up a host of false negatives because certain variants are now not picked up by it, despite people having specific Covid symptoms of loss of taste and smell? How can anyone make effective decisions on incorrect results and data?
And before anyone suggests I am being disrespectful to the great progress medicine has made to progressing the tests and vaccine, save your breath. I am a good compliant boy, and I am double vaccinated. I have also had Covid. However, we all need to accept that this virus and its variants has one goal – and that is to live. It will do all it can to beat the vaccine and weaken your immune system for new strains to conquer in the future. Who’s to say that your immune system would not be stronger without the vaccine? The truth is no one really knows.
I spoke to my Dad the other day and to say he was a bit angry was an understatement. He is having treatment for skin cancer, which involves twice daily application of a cream that literally burns the skin off your face. Anyway, it wasn’t the cream he was angry about, it was the state of the world we are living in. Growing up in WW2 he had nothing, spent hours in bunkers, endured subsequent rationing but was fundamentally happy. Everyone pulled together. Now, although the world has a common enemy in Covid, we all seem as separate, non-integrated, and uncaring for each other as we have ever been. Says it all really.
One of the funniest stories I have seen in July is the petition to keep Jeff Bezos in space, never to return. In fact, I would go further and include Branson, Musk, Biden, Trump, Johnson, Fauci, Gates, Schwab, Thunberg and Von der Leyen in the spacecraft too. Give them plush 1st class window seats, with spectacular views of Earth and set up a 24/7 TV station to give us our next great TV reality show. The aim is for any of them to find true love whilst orbiting the Earth. I appreciate the last idea is a bit far- fetched, as these are egotistical, narcissists who are more likely to eat, rather than love each other, but either way it would be 1st class entertainment. Keep them permanently in space and we take the taxes they should have paid (but instead went to funding their toy rockets whilst we are forced to stay at home) and it’s a win-win in my book.
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Stay safe and see you next month. I am Sheep Shearer and I shear sheep.
Each blog has ever changing content and you should be aware that it contains my opinions and does not reflect the opinions of anyone else. There is no intention to upset anyone, and information presented is accurate and true to the best of my knowledge but there may be omissions, errors, or mistakes. My blog is for entertainment and informational purposes only and should not be used as professional or financial advice. Consult relevant financial professionals to get personalised advice before you make any trading or investing decisions. If you rely on the information in each blog, it is at your own risk.