INTELLIGENCE: SMART MONEY STEPPING INTO GOLD AHEAD OF ITALIAN REFERENDUM $GLD $SLV $GDX $FXE $FXY $NUGT $ABX $CDE $HMY $PALL $PPLT $QQQ $SPY

SMART MONEY STEPPING INTO GOLD AHEAD OF ITALIAN REFERENDUM $GLD $SLV $GDX $FXE $FXY $NUGT $ABX $CDE $HMY $PALL $PPLT $QQQ $SPY

This post was just published on ZYX Buy Change Alert.

For us to recommend, a security must pass at least four of the six screens. We prefer a stock to meet all six screens. Our rigorous criteria has led to enviable performance over a long period of time. We periodically provide intelligence on trades that we do not recommend, but our subscribers may be able to take advantage.

The Merit

There is merit to consider buying gold or a gold miner today ahead of the Italian referendum.  The risk reward is asymmetrical in favor of buying.  In plain English, if the referendum is a ‘no’, there is a $40 to $80 upside potential but the downside potential is $10 to $20 if the referendum is a ‘yes’.

If the margin of victory of ‘no’ vote is large, the momo crowd can drive gold up  $150 to $200 over perhaps a week to 10 days.

Chart shows the first target zone and the second target zone if the vote is a ‘no.’

Please click here for an annotated chart.

Smart Money Steps Into Gold

From today’s Morning Capsule made available to Arora Report subscribers every morning,

In a rarity these days, smart money is lightly buying gold.  Perhaps the reason is to guard against a negative outcome in the Italian referendum. If the outcome is a ‘no’, gold can easily jump up $40 to $80.

In another rarity, the momo crowd is selling gold.  It appears that the reason for selling is that the momo crowd has incurred huge losses in gold and now they cannot take the pain.

Over the years, The Arora Report has refined its highly specialized algorithms that detect footprints of smart money in precious metals using trading data from across the globe..

The Fly In The Ointment

The reason we are not able to give an official signal to buy  is that there is no good way to calculate the probability of a ‘yes’ vote or a ‘no’ vote.  As our long-time readers know, our ZYX Change Method and ZYX Allocation Model are rigorously analytical and depend on data.

What To Buy

Most investors may consider buying GLD today in the zone of $111.00 to $112.36.  GLD is trading at $112.09 as of this writing.  For those using different instruments, gold equivalent price is $1177.

Aggressive investors may consider buying NUGT.  NUGT is a triple leveraged gold miner ETF.  The gain in NUGT in the event of a ‘no’ vote may be about 500% more compared to buying ETF GLD.  As a matter of caution, think about the flip side before buying NUGT.  The flip side is that your losses will also be about 500% more than if you bought ETF GLD.

Based on your own risk preference, a good compromise may be buying silver ETF SLV.  Please note that the risk reward in SLV is not as favorable as GLD.  SLV may see about 40% more upside than GLD but 100% more downside than GLD.

Investors may also consider gold miner ETF GDX. GDX is has about 100% upside compared to GLD but only about 60% downside compared to GLD.

As a full disclosure, in totality we have large short positions in precious metals and miners with large unrealized gains. These short positions include GLD, SLV, SLW, ABX, HMY, CDE, PALL, and PPLT. We are hedging these positions 100% with GDX before the end of the day. It is simply prudent to control risk.

Italian Referendum Details

Italians will vote on a constitutional referendum on December 4th.  If approved, expect the most extensive reforms in the Italian government since the end of monarchy. Italian Prime Minister Matteo Renzi is the architect of the referendum.  For months the polls had been in the ‘yes’ camp and the consensus continue to be a ‘yes’.  However, four polls published on November 18th show the ‘no’ camp was leading.  Under Italian law, these were the very last polls allowed.

After Brexit and Trump, it is simply not prudent to 100% believe the polls or the consensus.

If Renzi loses, it may indirectly start a sequence of events leading to disintegration of the Eurozone.  There are three opposition parties in Italy, all favor exiting euro.  As a full disclosure, we have a position in inverse euro ETF EUO and also short position in euro ETF FXE.

At least in theory, if the ‘no’ camp wins, it should have a major negative impact on the U. S. stock market, and major positive impact on U. S. bonds and dollar.  In plain English, you could wake up on December 5th to see complete reversal of trends in place since Trump’s election.  Watch out for downside in ETFs SPY, QQQ, IWM, TBT, and TBF as well as upside in ETFs TLT and TMF.

Caution

Please keep in mind what has come to be affectionately known as Nigam’s Second Law of Investing, “No one knows with certainty what will happen next.”  Be aware of cross currents.  Before buying please see prior posts related to India and China actions on gold.  The key point here is that those negative actions are not likely to happen before Monday.

Here we are providing intelligence for those who can take advantage of it.  This is not a regular trade and there may not be a follow up on this blog even though there may be a follow up on ZYX Buy Change Alert.  For this reason, even if profitable, this trade will not be included in performance.

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