From the Stock market section of the Weekly Market Update posted on 19th October, under the heading “What to do”:

“We have no idea what anyone else should do, apart from maintain a substantial cash reserve. Having exited all stock-market-related put options last week, the short-term plan for our own account is to begin averaging into January-2016 SSO (ProShares Ultra S&P500) put options following some additional rebounding activity over the next few weeks. We might also average into the unleveraged, actively-managed bear funds previously mentioned at TSI (BEARX and HDGE).

This plan assumes that a multi-week low was put in place last week. If this assumption is wrong and it turns out that the initial decline from the September peak is not yet over, then we will take no action. We will not enter bearish speculations when the market is in the midst of a sharp decline.“

I’m posting this brief comment to advise that if the US stock market opens strongly today (Tuesday) then I will probably take an initial position in the aforementioned SSO put options or some other puts. I want some coverage in case the rebound fails sooner than anticipated.

I also want to make readers aware that Almaden Minerals (AAU) and True Gold Mining (TGM.V) issued bullish press releases earlier today. The news will be discussed, as usual, in the next Weekly Update.

Despite the fact that the NASDAQ Composite and NYSE Composite Indices tested Wednesday’s intra-day lows on Thursday 16th October, the number of individual NYSE and NASDAQ stocks making new 12-month lows collapsed on Thursday. The relevant charts are shown below. Across the NASDAQ and NYSE markets, the number of new lows fell from around 660 on Wednesday to around 200 on Thursday. This has bullish implications with regard to the next few weeks.

If you are in the position of needing a market to do something specific in the short term, such as rally or decline by a certain amount, then you are positioned wrongly. You should be positioned in such a way that you can watch the day-to-day price moves with equanimity. Furthermore, unless you make a living from scalping small profits from intra-day fluctuations, you should NOT watch the markets closely during the trading day. No good will come of it, because closely watching the intra-day price action will increase the risk that you will make a spur-of-the-moment decision based primarily on emotion. That is, it will increase the risk of making a mistake.

Before a market in which you have a financial interest opens for trading you should know the prices at which you would be a buyer and the prices at which you would be a seller. You should therefore be able to place any orders prior to the open. You can then check back later — ideally, after the market has closed — to see what happened and which, if any, of your orders were filled.

I feel fortunate to be separated by 12 hours from the stock markets in which most of my stocks trade (the US and Canadian stock markets). This separation removes any temptation that I might otherwise feel to watch the intra-day trading action, because it means that I am usually asleep during the bulk of the trading day.

On a typical day (night) I check the futures markets and company-specific news well before the start of the North American trading session and decide what, if any, new orders are appropriate. Most orders are placed prior to the open, although occasionally I watch the first few minutes of trading before placing an order. I then usually check back after about one hour to see what’s happening before switching off for the night. By the time I switch back on the markets are closed and I can calmly (most of the time) assess the day’s outcome and start thinking about what new orders make sense for the next day.

On a related matter, the majority of the orders I place are either priced well above the market (for sell orders) or well below the market (for buy orders), with the bid and offer prices usually determined by a combination of valuation and chart-related support/resistance. As a result, my orders sometimes sit around for at least a few weeks before getting filled and sometimes don’t get filled at all. I never, ever, use market orders.

Due to the scaremongering of some bloggers, newsletter writers and other promoters of gold manipulation theories, there is still a popular belief within the so-called “gold community” that the SPDR Gold Trust (GLD), the world’s largest gold ETF and for a while in 2011 the world’s largest ETF of any type, doesn’t have all the gold it is supposed to have. There is supposed to be slightly less than one ounce* of allocated gold in the vaults of GLD’s custodian or sub-custodians for every 10 GLD shares, but rumour has it that GLD has put some or all of its gold bullion at risk via gold leasing or other secretive dealings.

The operative word in the above sentence is “rumour”, because there isn’t a shred of evidence that GLD has leased any of its gold or put its gold at risk in some other ‘unacceptable’ way. There is, however, definitive evidence that GLD does have the correct amount of gold. First, GLD maintains a list of every gold bar it owns. The Bar List is located HERE, is updated daily, and contains the serial number, weight and assayed purity of each bar (61,488 of them as at 13th October 2014). Second, the Bar List is audited by Inspectorate International. Specifically, Inspectorate conducts two audits every year of the gold bullion held on behalf of GLD at the vaults of GLD’s custodian. One of these audits involves a complete bar count, meaning that every single bar is inspected and checked against the Bar List. The second audit is a random sample count.

Interestingly, James Turk’s Goldmoney.com also uses Inspectorate to audit the gold in its custodian’s vaults. The latest full audit report of GLD’s gold inventory can be viewed HERE and the latest audit report of Goldmoney’s inventory can be viewed HERE.

Owning GLD is not the same as having physical gold in your possession or having ownership of allocated gold in a vault that you can take delivery of (GLD shares can only be exchanged for gold bullion in 100,000-share lots by Authorised Participants). It is simply a convenient way to trade something that is fully backed by physical gold via the stock market at very low commissions and buy-sell spreads.

If you own GLD shares and plan to maintain your position for 1-2 years or longer then you should give some thought to switching from GLD to GTU (Central Gold Trust), because GTU is currently trading at a discount of almost 8% to net asset value. At current prices, by selling GLD and buying the same dollar amount of GTU you end up with exposure to almost 8% more gold.

*There was originally one ounce of gold for every 10 GLD shares, but the amount of physical gold per GLD share falls by a tiny amount each year due to storage and insurance costs.