Great Trading Advice From One Of The Word's Best Marketers

Seth Godin, an American marketing guru who is on top of his game, recently made a post on his blog entitled Top 10 Secrets of the Marketing Process.

Point 5 was -

If it makes you nervous, it's probably a good idea. If you're sure you're right, you probably aren't.

What makes this so interesting is that it's one hell of a trading/investing rule when applied to the markets. In fact it's just another way of saying one of our favourite trading rules which is often quoted here in the Newsletter -

Do the hard thing

'Doing The Hard Thing' Should Be A Good Money Maker In 2008

The markets are making everyone nervous right now which in turn should lead to some fantastic trading opportunities. This is based on the fact that most markets overreact both on the upside and downside, ie prices are pushed too high on optimism and too low on pessimism.

One way to use the trading rule of 'do the hard thing' or paraphrased 'take the hard trades' for both investors and traders is as a filter.

• So every time you want to buy or sell filter the trade with the statement 'is it hard to take'
• If the answer is 'yes, it's hard to take' then make sure you do it, but
• If the answer is 'no' then either don't take the trade or at least reduce your size
  

Don't discount either the simplicity of this filter nor its effectiveness because if used overtime it can dramatically improve overall profitability.

• Seth Godin's Blog

Gold Comment - Watch The Chinese

In 2007 official Chinese Gold reserves (as held by their Central Bank) amounted to around 600 tonnes according to figures released by the world Gold Council.

This figure should be compared to the following country reserves -

The Chinese Central Bank Is Being Urged To Increase Gold Holdings

Many influential Chinese commentators and advisers have been calling on China to increase its Gold holdings from the current 1.3% of total financial reserves to somewhere nearer 5%.

And if you think about it a figure of 5% sounds logical regardless of whether gold rises or falls from its current price. After all it's only good financial management to spread your money around and as everyone knows China has far too many Dollars right now.

I therefore think that China over the coming years has the potential to be a major upward catalyst for the price of Gold. And right now I wouldn't be surprised if Chinese Government traders have been covertly buying massive amounts of Gold over the last year or so. Perhaps they've been one of the main drivers of the price appreciation?


IMF To Sell 400 Tonnes Of Gold

Last week many of the papers carried the story that the cash strapped IMF was proposing to sell 403.3 tonnes of the metal which accounted to around 12% of its reserves and could yield around $10 - $11billion.

Whether China will be a part buyer of this hoard we'll most probably never find out but personally I think that any entity looking to sell large tonnage of Gold will have no problem finding equally large buyers.

The China effect is one reason I continue to like the prospects of Gold. My advice is simple though - investors should keep their eye on the long-term economic picture rather than get swayed by the short-term movements and comments from the media.

Personally I'm looking to buy more Gold around the $850 level (currently $915). If it breaks this month's low of $875 then expect stop loss sell orders to push it quickly down to what I see is good support around $850.

The Chinese/Gold Wildcard

It's a highly speculative prediction but one which if it plays out could propel the price of Gold into the stratosphere ($3,000+).

Dr Van K Tharp, a well regarded trading psychologist (helps traders deal and overcome the mental side of trading), is quoted in the April issue of Traders Magazine as follows -

"I think eventually the dollar won't be the world's reserve currency. As soon as that happens it won't be slow and steady. My guess is that China will accumulate enough Gold and then make their currency Gold-based. That will change everything - But that's just a wild guess."

Yes, it's a wild guess with most probably only a 5% chance of happening but even if it doesn't China will probably start to dominate many more markets, including Gold, over the next decade. And of course don't forget that historically the Chinese themselves have been great lovers of the metal, something that we in the West are not.