Investors: How To Profit From Falling Gold, Silver and Commodity Prices (SLV, GLD, IAU, AGQ, DBA)
Martin D. Weiss: The list of commodities slammed by global selling is growing by the day. Meanwhile, the list of sovereign countries and giant banks downgraded by major rating agencies is also getting a lot longer — 15 megabanks downgraded by multiple notches in one fell swoop … Spain downgraded to the brink of junk territory … India and its banks also risking a downgrade to “junk” … plus Italy, France, the United States and even Germany on the chopping block for future downgrades!
Most important, the sum total of losses piling up in the portfolios of investors is expanding geometrically.
This is precisely what Weiss Research’s Larry Edelson has been warning you about — repeatedly and consistently. He’s the only gold bug I know who got out in time and has even made money in the decline.
Some of Larry’s subscribers, anxious to pile into gold when it was soaring, were initially unhappy, even angry at Larry’s bearish calls. But now that they see the big losses he helped them avoid, they’re absolutely delighted.
Of course, we don’t know how much money each subscriber makes or loses — we’d need to see their broker statements for that. But Larry has given us copies of his own statements from his personal test trading account.
Result: Even after deducting all commissions and costs, Larry has grown his account from a net investment of $70,000 to $142,879 — more than a double in six months’ time.
So I asked Larry to tell us how he did it, how our readers can do it, and what he thinks will happen next. Here’s a transcript of our dialogue:
Larry Edelson: I made most of the money in precious metals and commodities.
Martin Weiss: But precious metals and commodities have been falling, just like you warned. So how is that possible?
Larry: I never said I was buying. I actually made most of the money playing the downside — using investments that are designed to rise when commodities fall.
Martin: Isn’t that unusual?
Larry: Unusual? Perhaps. Difficult? Absolutely not!
Martin: The obstacle seems to be that most of our readers believe that the big-picture, long-term trend — in gold, silver, oil and other resources — is to another massive move to the upside.
Larry: So do I.
Martin: Well, that sometimes makes it hard for them to get their mind around the idea of profiting from market declines.
Larry: I understand, but once you can overcome that hang-up, trading for large profits on the downside is actually very simple and straightforward.
Martin: How long do you intend to hold your bearish positions?
Larry: I’ve always said: Never fall in love with your bullish positions; when the market gets too frothy, take your profits and run. Well, the same goes for bearish positions.
Precisely when these resource markets look like they’re about to go to hell in a hand basket — that’s when you’ll see them launch the next big leg in their secular bull market.
Martin: How do you know, ahead of time, when and how that big turn is going to happen?
Larry: No one can pinpoint exactly when. But I think I can give you a pretty good idea of how!
Right now, Europe is collapsing before our eyes — banks flooded with withdrawals … sovereigns paying through the nose for borrowed money … both getting downgraded left and right.
But we still haven’t seen a Lehman moment — the outright default or failure of a sovereign nation or megabank.
That’s when credit markets will freeze up, threatening a global financial meltdown.
That’s when the big central banks of the world are likely to unleash their next massive round of unadulterated money printing.
And that’s when you’ll see resource markets bottom and start to turn.
But don’t prematurely anticipate that move. Because until the Lehman moment does come, all the central bankers can seem to do is to meet … debate … and produce a lot of hot air.
Martin: There’s no consensus, no political will to act.
Larry: And no quick end to the declines in gold, silver, oil or other resources. This is why I think they can be a great, near-term profit opportunity — they’re so predictable. And it’s also why I believe the big turn could be an even GREATER opportunity.
Martin: Why greater?
Larry: For three reasons. Even if I’m just half-way right …
You should be able to pick up tremendous bargains in resources when they near a bottom.
Then you should see a dramatic bounce that can produce unusually large profits in a relatively short period of time.
And next you should get a bull market in resources that surpasses virtually any other in history.
Martin: Still, gold and silver are plunging right now. Doesn’t that bother you?
Larry: I’m actually delighted. Remember: The more they fall the more money we stand to make with bearish investments.
Just last week, for example, I saw the European Central Bank huddling in its corner and the Fed unwilling to take any additional steps to help out.
I saw the European economies sinking and the U.S. economies slowing — not good for gold and even worse for silver, which is largely an industrial metal.
So I bought an inverse ETF on silver with 2x leverage — an investment that’s designed to give you 20% gains for every 10% decline in the price of silver.
Just 48 hours later, that position was up about 12%. And that’s just one of SEVERAL ways to profit from declines in precious metals and other commodities. I also use other instruments that can give 10x leverage and 16x leverage — all with strict risk control.
Martin: Please tell us more about these today. But right now, let’s zero in on what’s happening and give our readers critical information they need to help safeguard their assets.
Worldwide Liquidation of Assets Driven by Fear and Panic
Larry: Here’s the scoop …
First, the recent Greek elections have done nothing to stem the euro-zone crisis.
Spanish bond markets are still crashing, and Spain has just been forced to pay the highest interest rates in euro history — more than DOUBLE its 2-year rate of just three months ago!
Its 10-year bonds (see chart) have also collapsed in price, driving yields past the red-light-danger level of 7%.
Martin: When this happened to Greece, it was dangerous. But Spain’s economy is FIVE times larger than Greece’s and five times more dangerous.
Larry: Yes, but if you think the fall of Greece and Spain are a threat, brace yourself for Italy’s demise. Italy’s economy is nearly FOURTEEN times larger than Greece’s — bigger than Russia’s, Canada’s or India’s.
Or, just add up the GDPs of Switzerland with all its banking, machinery and precision instruments … Sweden with all its telecom and autos … and also Saudi Arabia with its huge oil exports … and you STILL would have an economy that’s a lot smaller than Italy’s.
Martin: But when we say Italy is heading down the same path as Spain and Greece, how many people believe that?
Larry: Not too many, but more than before! Three years ago, when we said Greece was going to default, nearly everyone thought we were nuts. Then, last year, when we predicted a Spanish meltdown, maybe a handful of people took us seriously. And now, our forecast that Italy will be the next domino doesn’t sound nearly as extreme as it might have in the past.
Martin: All this is coming to a head. But tell us what you think the trigger mechanism might be for a financial meltdown the likes of which we saw in 2008.
Larry: As you explained in Money and Markets recently, there are two possible triggers:
Trigger #1 is mass withdrawals from banks. And right now, despite the supposedly positive results in the Greek elections, the withdrawals are continuing to spread — not only in Greece, but also in Spain, Italy and Cyprus.
Trigger #2 is a collapse of sovereign bonds. That can make it impossible for governments to borrow the money they desperately need.
Martin: Explain why they’re so desperate.
Larry: Say you’re the finance minister of Greece or Spain, for example.
For years, you’ve been borrowing from Peter to pay Paul — to roll over your country’s debts that are continually coming due.
And when you can’t borrow in the open markets, you figure you can get the European authorities to bail you out.
But that comes at an extremely high cost: You have to give up a piece of your sovereignty, the very essence of your country’s existence as an independent state.
And now, you’re down to just two choices. Either you …
- Default and shut yourself out of the financial markets for years to come — a sure-fire ticket to depression. Or you …
- Accept more bailouts from Europe, give up your sovereignty and slap your people with austerity measures, driving millions to riot on the streets.
This is the Catch-22 Greece is already in. And it’s the same Catch-22 that will soon envelop Spain and Italy.
Martin: Are the central banks going to jump to the rescue before it goes that far?
Larry: Yes, but not decisively!
As I’ve warned, the European Central Bank (ECB) has so far decided it will NOT yet print more money to bail out Europe’s wobbly financial institutions — or even busted countries like Spain and Italy.
Meanwhile, our own Federal Reserve stood pat last week, taking virtually no action to help the U.S. economy and explicitly ruling out any direct help for Europe.
That’s a big blow to Europe that will be felt this week, as countries like Spain and Italy have even more trouble auctioning their bonds to raise cash.
Martin: Is this why gold is falling?
Larry: Yes. Gold IS signaling a massive crisis ahead — but not the kind of crisis that you normally associate with gold. Instead, it’s signaling the kind of rampant FEAR and PANIC that causes worldwide liquidation of assets and a stampede into cash.
This is why gold is breaking down through important support levels. Investors are scared out of their wits and they’re even liquidating gold. Ditto for silver and crude oil.
Martin: Earlier, you said you’re making money from these declines? Can you give us some specific examples?
Larry: Sure. I started trading a test account on November 7 of last year with a net investment of $70,000.
I made $7,815 in platinum in just 40 days, a 102.9% return.
I made $5,770 in gains in another key commodity in just two months, a 104% return.
I had open gains of $9,072 in an investment designed to profit from movements in the U.S. dollar (in 24 days), $3,414 in heating oil (1 day), $4,610 in crude oil (2 days), $8,115 in cotton (24 days), plus some additional gains and some losers as well.
All told, including both winning and losing trades, the ending balance on May 31 of this year, after deducting commissions, was $142,879.39.
Of course, there have been — and always will be — losing trades. And past performance should never be considered an assurance of future results.
But what this experience underscores is that these are some of the most exciting times ever to be investing in these markets.
Martin: And most of this was in falling resource markets.
Larry: Yes. I achieved these results when central banks were not coming out swinging, when they were not yet pumping up the market with a whole new round of printed money.
But there’s no question in my mind that they will ultimately print trillions more in fiat money when a major failure strikes. And when they do, I have every reason to believe the profit potential in these markets will be even greater.
Martin: Tell our readers more about the instruments they can use — whether they follow your signals or not.
Four Instruments for Trading Natural Resources
Larry: You can start with physical gold and silver coins and ingots.
If you had bought gold when I first recommended it at $255 per ounce in 1999, you’d be sitting on a 550% gain. That’s enough to turn every $25,000 invested into more than $137,000. And I think we will see a similar opportunity in gold’s next leg up.
But instead of merely buying and holding, I’m trading at key turning points. For example, I reduced and fully hedged my bullion positions before this decline began. Plus, I intend to load back up — and unwind my hedges — as gold hits a major bottom.
Martin: All without any leverage!
Larry: Right. For some leverage, I use natural resource exchange-traded funds (ETFs). They can give you double or triple leverage. In other words, they can generate 20% or even 30% profits for every 10% change in resources prices.
Of course, leverage is a double-edged sword: It can also multiply your losses. That’s one reason I don’t recommend them for buy-and-hold investors. But they ARE great medium-term trading vehicles.
All told, I count more than 251 ETFs you can use to grab huge profit potential — and the profits can be impressive, to say the least!
Martin: Give us some examples.
Larry: When the grain markets were staging some of their smaller, initial rallies, the PowerShares DB Agriculture ETF (NYSEARCA:DBA) surged by 24.3%.
And with a recent move in gold using my favorite leveraged gold ETF, you could have recently walked away with gains of up to 63% in just 90 days. At that rate you could multiply your money more than three times over in a single year!
It gets even better: A leveraged silver ETF recently surged by a whopping 227% in just three months — more than a TRIPLE in a mere 90 days!
Picking the right instruments at the right time is never an easy task. And I could also give you examples of big losers. But you should know that the examples I just gave you were in choppy markets without massive new money printing driving prices sky-high.
My third strategy is to go for up to 10x leverage by trading warrants on natural resource stocks.
Martin: Similar to options?
Larry: In some ways, yes. But warrants offer some major advantages that options do not.
Unlike options, they represent actual equity investments in the underlying company. So you can buy and sell them just like you do stocks — in an ordinary stock brokerage account, usually without additional approvals from your broker.
And warrants are often available for far longer time periods than options — sometimes as much as five years. As a result, they’re generally not as sensitive to the passage of time as options are.
Even better, because warrants are so little understood, special opportunities can sometimes arise to buy them at substantial discounts, giving you the chance to make a much larger profit than you would otherwise.
Martin: Bullion, ETFs and warrants. That’s three different instruments you can use.
Larry: Yes, and I believe that if you use only those three, your profit potential can be enormous! Plus, as an extra bonus, I’m also using disciplined futures trading!
Martin: Why futures?
Larry: First, because of liquidity! This is the oldest, most liquid, widely traded investment market on the planet. It is far more liquid than equities or equity index ETFs.
As a rule, this liquidity makes it possible for me to get into AND out of the market more easily — and with fewer price distortions — than with any other instruments.
And that advantage, in itself, gives me more freedom to apply tactics that are designed to reduce my risk and maximize my profit potential.
Second, futures offer unbeatable leverage. For example, for as little as $10,125, you can control a contract of gold, currently worth about $163,000 — giving you more than 16-to-1 leverage. For every $1 the price of gold rises, you stand to make up to $16!
Third, futures don’t lose value in sideways markets the way options do. So if, for some unexpected reason, it takes longer for our forecast to come true, it’s a lot easier to wait — to give the market some more time to respond to the powerful fundamental forces we see driving it up or down.
Fourth, futures are all-weather investments. Because of the way futures markets are set up, and because they are so liquid, you can bet on market declines just as easily as you can bet on a market rise.
Fifth — and most important — I find it far easier to manage risk in futures than in virtually any other market.
Martin: Why is that?
Larry: One reason is that futures markets trade virtually 24/7 and almost exclusively on an electronic basis. This means that you no longer have to rely on a floor broker to hold your order and execute it. It’s all done automatically and computerized.
It also means that when you place what are called “good-till-canceled” stops, your position is automatically monitored and protected virtually around the clock. That doesn’t guarantee against losses. But it does let me manage risk very efficiently.
Thanks to these improvements, I can place a stop order and sleep nights in the knowledge that, barring some extremely rare event, my stop order will almost certainly lock in my profit — or limit my losses.
Martin: How can our readers do this?
Larry: No matter what, you should learn more — not only about the profit potential but also about the risks and how to manage them.
For now, play mostly the downside moves until we get a Lehman-type event and an aggressive central bank response. Then, get ready to play the upside.
Martin: Thanks, Larry! We look forward to your continued success!
Related: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), iShares Gold Trust (NYSEARCA:IAU), ProShares Ultra Silver ETF (NYSEARCA:AGQ).
Money and Markets (MaM)is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, and Michael Larson. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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