By Nigam Arora
According to algorithms at The Arora Report, the “smart money” has stepped into gold ahead of the Italian referendum.
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-$80 upside potential, but the downside potential is $10-$20 if the referendum is a “yes.”
If the margin of victory of a “no” vote is large, the momo crowd can drive gold up $150 to $200 over perhaps a week to 10 days.
The chart linked below shows first target zone, and second target zone if the vote is a “no.”
The smart money steps into gold
From today's Arora Report Morning Capsule:
"In a rarity these days, [the] 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 the 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 the SPDR Gold Trust ETF /zigman2/quotes/200593176/composite GLD +0.90% 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, the gold equivalent price is $1177.
Experienced, aggressive investors may consider buying the Direxion Daily Gold Miners Index Bull 3x Shares ETF /zigman2/quotes/208908392/composite NUGT +4.01% . NUGT is a triple-leveraged gold miner ETF. The gain in NUGT in the event of a “no” vote could be up to 500% more compared to buying 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 GLD.