"In 1581, Galileo, while attending services at the Cathedral of Pisa, observed a chandelier swinging back and forth. Energized by shifting air currents, the chandelier moved in a variety of arcs and amplitudes. Thus was born the concept of the pendulum which Galileo used as a time measurement device in his later experiments"
The golden pendulum formula is a belief that, in any investment area, the herd instincts of greed and fear are prevalent, that virtually all extremes return to a natural equilibrium point or gravity center, and trends and cycles of these tendencies can be identified and measured.
Uncovering the full spectrum of trends, cycles, equilibrium points and fundamental values of the market is vital. The results should be in harmony with natural growth, maturity and regression.
An investor's primary mission should be to determine extremes of values, either long or short, that will result in a return to the current "gravity center" or an equilibrium point and thus a profitable trade. To this end, all decision lines, formulas and concepts must be fully integrated and calibrated to result in accuracy, precision and profit.
Fundamental Formula:
Many invest in gold and silver and resource stocks due to our huge trade deficits, unsustainable consumer debt, housing and stock market bubbles, etc. In 2003, John Embrey outlined 15 fundamental reasons to own gold at http://goldmoney.com/en/commentary/2003-09-26.html. Those reasons are still valid today and offer a type of insurance policy against potential financial disasters.
Evaluating gold, silver and resource stocks is not easy. Some are producers. Others may have a defined resource while others are explorers or prospect generators. In general, there are 10 areas in the gold and silver area in particular, that must be considered, evaluated and positively answered.
- Management, their vision, experience and partners
- Location of property
- Infrastructure
- Number of holes drilled
- Number of potentially mineable ounces from measured,
indicated and inferred resources.
- Open pit vs underground
- Metallurgy issues
- Political considerations
- Finances & potential share dilution
- Feasibility study in progress or planned
A more detailed analysis of these guidelines, their importance and other criteria are discussed by Kenneth Gerbino and can be found at...
Technical Formula:
Outside of the fundamental criteria for owning gold and silver stocks, there are measurable trends, cycles and behavior that allow investors to participate and profit from the pendulum swings into and out of this area.
Studies have shown that 60% of a typical stock price change can be directly attributed to the movement of the overall market. Therefore, it just makes common sense to be on the right side of a market trend. To that end, it is wise to first focus on an index trend before considering individual gold and silver issues.
Also, if we are planning to invest in any market arena, then it goes without saying that we need to reduce the risk, improve the probabilities and employ a more disciplined and original approach. My market direction indicators and advanced market behavior formulas are designed to assist me for just such a purpose, and I simply call it Pendulum. It is a personal tool box, as it were, to guide me in technical decisions.
The concept of trend is basic and using or developing an indicator that demonstrates a trend is essential. I recommend the MACD (moving average convergence divergence) found in most popular programs. In my work, I use my own modified form of the MACD which I call the TSL (Trend Signal Line). Like the MACD, it assists in identifying longer term trends but without as many whipsaws.
For obvious reasons, it is very important to develop one's own indicators so as to avoid getting the same results as everyone else.
Let's look at an example. One of the more interesting concepts is to display a trend and cycle in one integrated view. One can therefore see the longer primary trend and the short term cycle within that trend. The red TSL is the trend signal line noted above and the green Pendulum SRA, is my own short term speed and acceleration cycle indicator, overlaid and scaled on a 0-100 basis. Here is an example from a 2009 low in the XAU index.
As you can see, it did quite well and allowed an early entrance into a profitable up trend, a feature the TSL specializes in. So I would encourage all to develop their own personal indicators, formulas and techniques.
Today, my Pendulum tool box measures the swings in the market, their amplitude, force and energy while recording the motion of emotion across an equilibrium point or gravity center. The concept of gravity center is a central feature of Pendulum and is found throughout nature...that force of nature that compels both human behavior and physical objects to find their equilibrium point.
Results:
Using the concepts and criteria above, I employ two model portfolios, one gold/silver and the other resource stocks. In spite of the recent downtrend, the gold/silver portfolio is up an average 337% since 2002 and the resource portfolio 243% since its 2004 inception, a very satisfactory result for my purposes.
Conclusion:
We have discussed using key fundamental data and original technical trend criteria as the basis for stock selections in the gold/silver and resource investment areas. It is not easy, takes time and effort, but for the serious investor, it can be the golden pendulum formula for potential success.
Contact: Trader Garrett
Excerpt from an article by Chuck Cohen.....
Gold as a Thermometer
But in light of the massive amounts of stuff regarding gold I thought it proper to consider where I believe we are again in the gold map, especially since today we are perched at the highest level in 20 years. To make the reading easier I have placed these thoughts in an outline format. So, let's take a deep breath, try to block out all of the data and opinions of the moment and, try not to miss what I have always believed is a once-in-history economic event.
GOLD IS A THERMOMETER
Most importantly, gold is the ultimate barometer, or more correctly, the thermometer of the world's financial structure. During the 70's as it rose from the fixed price of $35 to a blow off of over $800 it reflected the record interest rates and commodity prices. Its move was directly related to systemic problems caused by a terrible war and unrestrained government spending. Remember "guns and butter?" Following the top, for the next 20 years, gold languished as the excesses of inflation work their way through the system. Stocks thrived and gold suffered.
But all bull markets end, usually without a public announcement, just as bear markets finish and the next cycle begins. It is not like our seasons where we have predetermined dates. As the stock market was completing its manic phase and everyone in America was smitten with securities, gold unnoticed was making its bottom and a new phase had begun. In my opinion, this move, which is now about four years old, will be much more significant than the one back in the 70's because this time the entire monetary system, not just the dollar, is coming unhinged. The world's paper currency is about to unravel and gold is headed to unthinkable levels. The monetary authorities know that a rising gold price is significant and have tried to repress its rise, especially during the last 10 years or so. But the breakout in the price against all currencies tells me that they have lost the battle and gold is about to accelerate out of what has been a measured and controlled pace. Anyway, here are some of my points about gold to help you focus on the larger picture and not get thrown off course with all of the opinions that are about to mushroom.
1. PATIENCE IS REQUIRED. TRADING IN AND OUT IS HARMFUL TO MOST PEOPLE. Warren Buffett is the world's most successful investor, not because he is a great trader, but because he is patient and courageous. He is not mercurial, trying to scalp a point here or there. Instead his philosophy is to buy on weakness groups which are out of favor, and then while everyone is palpitating and excitedly buying in herd formation, he sells to them from his holdings. I think it is very instructive to follow his methods, since they have proven to be so successful over the years. Now to the precious metals.
2. WE ARE IN THE SECOND LEG OF A MASSIVE BULL MOVE. The first one took gold from its fixed level of $35 or so to over $800 in a decade. For the next 20 years, gold endured a miserable bear cycle. Then, quietly and without any headlines, the second leg began. We are now about 5 years into this leg still without much widespread acceptance, although that is changing and I believe will reach panic proportions.
3. GOLD AND SILVER RUN COUNTER TO OTHER FINANCIAL ASSETS. That means that even though the price of gold has doubled, it has done so without the help of money moving to any extent from stocks, bonds or real estate. When this begins in earnest, the price will accelerate dramatically.
4. GOLD AND SILVER ARE MOVING EXPONENTIALLY. They moved this way in the 1970's, as did stocks from 1980-2000. In fact, it appears that the nice smooth uptrend in gold has now begun to accelerate from the pattern. This is the nature of financial markets. A bull run does not conclude without everyone trying to get a piece of it. This time will not be an exception.
5. GOLD HAS MOVED THROUGH THE HIGHS OF THE 1980'S. That is a major achievement since, outside of a few fringe elements such as King Midas, there have been very few who have felt this would happen as soon as it has. Most analysts are continually adding $20 or $30 here or there to their forecast so they won't look so wrong.
6. THE MOVE HAS BEEN MADE WITHOUT ANY REAL COVERAGE OR UNDERSTANDING BY THE MAINSTREAM PRESS AND WITHOUT ANY PERIOD OF REAL SPECULATION. When Google went through $400, it made the front page of every newspaper and news source. When gold pierced $500, you had to go to the third or fourth page of the financial section to find out. The media are scratching their noggins trying to explain how gold could be rising while the dollar has been so strong. By the time they "get it" and are enthusiastically following the metals and even recommending it, the move will be on borrowed time. Look for Midas to be on CNBC or Bloomberg as a sign. Sounds impossible?
The other way to measure it is to take a look at the exploration companies, many of which are down 80% from their highs of a year or two ago. If the move was at its completion these companies would look like sparklers and even your neighbors would now own some and tell you which ones to own. This phase should begin in earnest next year as gold blows away all expectations.
7. GOLD HAS EXPLODED AGAINST ALL CURRENCIES especially those that everyone had considered the strong currencies of the world. Just go to Kitco.com and review the charts of gold against the once mighty Euro and the Yen. That means that gold's rise is not a dollar-related phenomenon. The closing of the gold window by President Nixon eventually ushered in the gold movement beginning in 1971. The breakout against all of the heretofore strong currencies will have the same effect, except I anticipate something infinitely more dramatic and lasting. Ultimately, gold will be the only trustworthy currency of the world.
8. THE CENTRAL BANKS HAVE BEGUN TO NOT ONLY STOP SELLING GOLD BUT TO BEGIN TO ADD GOLD TO THEIR RESERVES. So far, we have a couple of announcement such as Russia, Argentina and South Africa, but it is reasonable to expect the others to protect what gold they pretend to have left, and even to add to it. Given the rapidly declining production and the explosive paper creation, we may wish them lots of luck. If their capping could not stop the move thus far, what will their reversal mean?
9. A WORLD DEPRESSION OR WORSE IS ON THE HORIZON. That means that the attempts to depreciate national currencies and hold up the mushrooming bankruptcies will cause a flight into the security and unchanging, unique properties of gold. Remember, contrary to what gibberish you hear and read, markets are the forward-looking mechanism in the financial world. Earnings merely tell you what happened months ago. The acceleration and explosion of gold this time around will predict the disaster that is coming. Don't expect to learn of this in advance on the TV shows or in the Times.
10. THE MYSTERIOUS WORLD OF DERIVATIVES, ELECTRONICALLY CONNECTED FINANCIAL TRANSACTIONS, NAKED SHORTS AND GOLD THAT ISN'T THERE. This is an area that is being taken on faith by the mainstreamers but has yet to be tested. If the trillions of dollars that are backed by a tiny fraction of real money are ever assaulted, as I believe they will be, we will see gold move in an entirely different fashion. I expect that very shortly the Midas $6 rule will shift to a $20 rule and eventually to much greater intraday moves where the buyers, shorters and the derivative gang vie for the barbarous metal in a frantic, and most likely, futile attempt to avoid bankruptcy and jail. The world financial structure is moth eaten, totally corrupt and will one day join Mr. Dumpty.
11. THE RYDEX PRECIOUS METALS ASSETS has actually declined during this last move. This is a barometer that I have followed and found to be highly predictive. This action is a unique occurrence which means to me that the traders or hot money are actually leaving this area rather than getting excited. This also confirms the total disinterest and lack of faith in the staying power of the gold and silver market. As Bob Hoye has repeatedly said, "Think small-techs in the early 1990's."
12. THE WORLD POLITICAL ENVIRONMENT IS INHERENTLY UNSTABLE. It is totally illogical not to expect an escalation of the terrorist activities that are demonically driven. We are powerless against a religious system that purports to reward suicidal murders with eternal salvation. I believe that the Book of Revelation points to the battles that emanate out of the nations surrounding the land of Israel. Read of the significance of the river Euphrates at the very last days. Isn't it interesting that behind the river lie both Russia and Iran. Would you trust these two nations in the long-term?
13. ENDEAVOUR MINING CAPITAL, which I consider a proxy because it is a virtual closed-end investment company, and a fascinating, unique company now selling at about a 40% discount to its net asset value. I expect that it will sell at a healthy premium at a tradable top. This discount is a further indication of the disbelief that still exists against gold. I could also add that the Prechterites are still predicting a collapse in the metals. After the move we have seen both in the metal and the shares, I still consider him to be a barometer.
CONCLUSION. The nitty-gritty is that the world's landscape, in spite of the artificial prices on the stock exchanges, has dramatically changed. The past couple of years have seen gold move up evenly, with many attempts to suppress it if it started to move too quickly. I believe that the calming effect that has kept attention away from this area is vanishing and we are now accelerating in an exponential pattern.
Lately, there have been some higher quality stocks such as Goldcorp, Freeport McMoran and ASA that are leading the shares higher. And as this kind of leadership has occurred, the interest in the more speculative exploration stocks has fallen away almost totally, with many of them back to the point where they were at $300 gold. Some might be concerned by this divergence, but I see it as terrifically positive and that it indicates that an explosive rise is at hand, since the rise in gold should have brought some measure of speculative fervor. I believe that the next two years will be a time in which the fundamentals of declining production and smaller companies with proven sizeable reserves will focus the share-attention upon this group.
