The Contrary Investing Report
Investing and Trading News, with a Contrarian, Sarcastic Twist!


Hedge Funds: Ultimate Contrary Indicator on Gold?

by Brett on September 24, 2013

Last Wednesday, Ben Bernanke surprised expert “consensus views” when he announced that QE Infinite would march on.

So much for the wisdom of crowds!

Gold went bonkers. The yellow metal rocketed up 4.6% – its biggest gain in four years.

And the real raging party occurred in the mining stocks. The Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) rallied 11%…with most of the revelry occurring in the hour after Ben dropped his verbal bomb!

Who knew?

Well, I’ll tell you who didn’t know. That’d be most hedge funds – who seem to get everything wrong these days.

Are Hedge Funds the New Magazine Cover?

Last week we defended the maligned cover of Time Magazine. It turns out their predictive performance these days has been quite mediocre – which is much better than they get credit for!

And I’ll tell you whose performance these days is much worse than they get credit for. That’d be most hedge funds.

Last year, hedge funds were “doubled up” by the S&P 500 index, which returned 16% to their pedestrian 8%. And this year, the gap has widened further. The Wall Street Journal has the 2013 return scoreboard at 20% for the S&P 500 versus just 4% for hedge funds as of last month.

These historically bad efforts can’t merely be blamed on the hedge fund industry’s lavish “2 and 20” compensation model. Something else is going on here.

And that “something else” appears to be taking the wrong side of a lot of trades.

Namely, gold.

Contrarian Money for Nothing: The Midas Touch

As you probably know, most financial writers “qualify” their take on gold. They’ll spout off crap like:

  • “I don’t trade gold, I own it as a hedge…”
  • “Actually I prefer it when gold goes down…so that I can buy more of it..”
  • “Gold is going to $5,000 but could correct 50% first…”

Blah, blah, blah.

I do trade gold. And I make “easy money” doing it. Here’s how you too can get your gold for nothing…and your brokerage checks for free!

Your Contrarian Guide to Profitable Gold Trading

  1. Determine if hedge funds are long or short gold.
  2. Take the opposite position.
  3. Make money.

This isn’t just simple…this is “stupid simple.” Let’s go through a recent case study – so that next time, you can join me in taking money from these jokers while they remain perplexed about the Fed’s next move!

In order to participate in this exercise, you’ll need access to a computer or mobile device. As well as access to Bloomberg.com, and the ability buy and sell The Market Vectors Junior Gold Miners ETF (NYSE:GDXJ).

You Like Gold? (Sell, Sell, Sell!)

Once a week, Bloomberg will report hedge fund positions. And every few months or so, they will report an extreme position in our favorite metal.

Like on July 1, when “hedge funds cut wagers on a gold rally to a five-year low.”

And August 26, when “hedge funds gold bets reached six-month highs.”

And finally most recently on September 16, when these guys sold gold “at the fastest pace this year.”

How’d the timing on these wagers work out?

Hedge Fund Contrary Indicator Gold

(Click to enlarge.)

Hedge funds’ “Midas touch” – you can’t make this stuff up.

By now, I’m sure you figured it out. When hedge funds are wagering big on gold – or against it – we bet big too. In the other direction!

And that’s what we call the Midas contrarian touch.


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Gold Jumps After Fed Announcement
Why Gold is Slipping
Read more on Gold, Hedge Funds at Wikinvest
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