3 signs investors are fleeing gold

Is it a temporary bump in the road or the beginning of the end? Either way, there are worrying signs that investor interest in gold and silver is waning.

We believe the trend is temporary, but there are worrying signs that investor interest in gold is waning. Here are three:

1) ETFs are pouring physical gold into the market. The impact of gold and silver ETFs on bullion prices cannot be understated, and last year, gold ETFs saw the lowest level of bullion intake since their inception in late 2004 (per IBTimes). That’s worrying enough, but in 2012, gold-based ETFs are actually selling off more gold than they’re taking in. That’s flooding the market with physical gold. Already in April, ETFs have sold off more than six tonnes of gold.

2) “The froth is coming off.” Pundits and authors have started venturing into the press with warnings that the gold and silver “bubble” is about to pop. One of the leaders of the bubble camp is Yoni Jacobs, author of Gold Bubble: Profiting from Gold’s Impending Collapse – a book that hit shelves yesterday. “The froth is coming off,” he says in a recent interview.

His reasoning for sounding the warning bell? Sellers have started out-numbering buyers. Last September, when the bottom fell out under gold prices, volume was extremely heavy – and that’s a bearish sign for the future. In addition, gold mining stocks are performing like gold’s glory days are long since past. The Market Vectors Gold Miners ETF (GDX) is down 20 percent over the past six months while the Gold ETF (GLD) has essentially stayed flat.

3) India’s government is trying to put the brakes on gold consumption. The government of the world’s largest gold consumer and importer is attempting to slow gold imports and consumption via taxes. The country doubled gold import duties from 2 percent to 4 percent. In addition, they’re levying a 0.3 percent tax on gold jewelry as the country’s struggling to contain a growing trade deficit.

The new taxes and the weak rupee have collided to push down gold jewelry and bullion sales by as much as 70 to 80 percent on a daily basis, per the Economic Times. “The demand is almost negative compared to previous years,” Ashish Mundhra, director of Chennai-based Mundhra Bullion, told the paper.

Still, not every agrees this is the end of the end for gold. And we definitely don’t either. In fact, we see this as one of the best time to buy shares in gold and silver mining stocks. We could be wrong, but we don’t think the U.S. economy is out of the woods yet. And with Bernanke at the helm of the Federal Reserve, we’re a lot more nervous about the future of the dollar than we are over the future of gold and silver.

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Gold prices take biggest plunge in 30 years; CME hikes gold margin requirements

On a fateful day in August 2011, gold prices collapsed more than $100 in a single day of trading.

Gold bullion prices collapsed more than $100 an ounce yesterday. According to Reuters, that’s the largest single-day drop in nominal dollars since 1980, and the largest one-day percentage drop (at more than 4 percent) since 2008.

Markets are jumpy right now. Investors are positioning themselves for an announcement from Fed Chairman Ben Bernanke on Friday morning. Bernanke will speak from his annual pow-wow with several others central bankers in Jackson Hole, Wyoming. While many were anticipating Bernanke would announce more economic stimulus (just as he did last year after the Jackson Hole meeting), that notion seems to have gained a lot less traction in recent days. That’s lent some strength to an otherwise ailing dollar and pushed investors into riskier trades – particularly equities.

One trader told Bloomberg that he started getting really nervous about gold prices when he heard that the total value of the SPDR Gold Trust (NYSE:GLD) had surpassed the value of the SPDR S&P 500 ETF (NYSE:SPY). SPY’s been the world’s largest ETF since 1993. Seeing it kicked to the No. 2 slot in favor of gold was a sign that perhaps stocks were underbought.

When it rains, it pours

The CME Group doused even more water on the price of gold after it announced late last night that it was raising gold margin requirements 27 percent after trading on Aug. 24. The move follows a 22 percent margin requirements hike on Aug. 11. If gold prices bounce back after today’s collapse, I wouldn’t rule out even higher margin requirements.

When the CME started raising margin requirements on silver this spring, they didn’t stop until the market had given up a month’s worth of gains. During one nine-day period late in April, the CME raised silver margin requirements by 84 percent.

One of the big drivers for equities yesterday, and a downward force on gold prices were better than expected numbers on durable goods orders. Orders for things like airplanes, automobiles and business equipment rose 4 percent last month. That was more than twice as much as expected. And that bit of good news overshadowed the bad: namely, that business spending fell 1.5 percent last month. That’s the biggest decline in corporate outflows since January, and it’s an indication that businesses started tightening the reins on their pocketbooks over fears of a double-dip recession.

The arguments for investing in gold (reference my post “Why invest in gold“) have gotten an added boost thanks to inflation not just in the U.S. but around the world. The Swiss Central Bank has even considered pegging its currency to the Euro so its export market can remain competitive. That leaves few safe havens for investors and it’s even pushed up the value of U.S. treasuries in the wake of a downgrade for U.S. debt. Investors invest not just to make money, but to protect the capital they’ve already accumulated. With the dollar expected to remain weak through at least 2013 (when the Fed may begin raising interest rates from historic lows), I don’t think we’ve seen the last of the gold story. This is just a temporary bump in the road.

How to short gold with ETFs

ETFs make it easy to bet against the yellow metal. Investors can short the flagship SPDR Gold Trust (NYSE:GLD) (which would have been good for a 3.3 percent gain yesterday), or go long on the PowerShares DB Gold Double Short ETN (NYSE:DZZ), which spiked 10.3 percent yesterday. GLD holds physical gold deposits in a London bank, while DZZ attempts to return twice the inverse of the Deutsche Bank Liquid Commodity Index. If the index goes down, DZZ should go up twice as much as the index’s decline.

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Rally in gold prices could still have legs

Here are three key reasons why the bubble in gold prices isn’t quite ready to pop.

In case you haven’t noticed, the gold market is starting to feel frothy. Over the past month, the SPDR Gold Trust ETF (NYSE:GLD) has risen more than 18 percent while the Dow Jones Industrial Average has tumbled 14 percent.

In a sign of the times, the SPDR Gold Trust actually surpassed the SPDR S&P 500 ETF (NYSE:SPY) to become the world’s largest ETF yesterday (per USAToday). GLD’s now holding some $78 billion in gold in a London vault, while SPY’s holding $77 billion in paper assets.

Gold bugs have to be getting jittery, even as they watch the value of their favorite commodity scream higher. Why? Gold just might be going parabolic, and anything that goes parabolic is doomed for a collapse (no matter how short-lived).

The same thing happened six months ago in the silver market when silver prices rocketed up more than 30 percent from roughly the end of April to the end of May. A series of new silver margin requirements from the CME was widely blamed as causing silver prices to crash.

Now, investors are starting to look at their watches and guess when the same thing’s going to happen to gold. I’m not ready to be a bear yet, though, and here are three reasons why:

1) Seduced by silver prices. I was thinking gold prices were getting over-heated until I look at the chart for the iShares Silver Trust ETF (NYSE:SLV). In April, the run-up in silver prices made gold’s current spike look paltry. In the span of 30 days, silver shot up 30 percent.

By contrast, gold has risen a mere 18 percent over the past month. If bullion is indeed going parabolic, we could be right in the middle of the most powerful part of the upward thrust. We’ve got to be careful, though. Silver more than made up for its rise by giving up all its gains in five short days. That’s a plunge of 6 percent per day!

2) Margin calls anyone? The CME took the brunt of the blame for cooling the silver market after issuing a series of vicious margin hikes when the market got overheated. During a nine-day span at the end of April, CME raised silver margins by 84 percent (per the Wall Street Journal). Two weeks ago, they started in on the margin requirements for gold raising them 22 percent on Aug. 11. CME also hinted more hikes could be imminent for gold, but still, we’re a long way from the 84 percent hike we saw for gold’s white cousin.

3) Timing is everything. Gold prices will likely remain strong through the end of the week as investors await an announcement from Federal Reserve Chairman Ben Bernanke. He’s hashing over ideas with some of the world’s most powerful bankers at the annual symposium in Jackson Hole, Wyoming, right now, and he’ll make some sort of announcement on Friday morning.

Last year’s gathering brought us QEII, of course, and some are betting there’s going to be even more quantitative easing on the horizon as the banking elite look for ways to keep the ship afloat. If that happens, expect lots of fireworks in the financial markets. I’m just not sure if it’s going to be good for gold, but I know better than to argue with a trend until its broken. Friday might be the breaking point, but I’m at least bullish until then. And if gold prices do indeed fall, I’ll look for ways to add more to my portfolio in the rocky months to come.

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3 reasons to move from silver into gold

Precious metals investors are re-assessing their holdings, and here are three reasons why gold will likely out-perform silver in the months to come.

The manic rise and fall in silver prices over the past few months has a lot of precious metals investors re-assessing their holdings. In the near-term, it looks like gold bugs have the upper hand. Here are three reasons why the yellow metal will likely out-perform silver in the months to come:

1) Slow and steady wins the race. The fundamental case for gold and silver hasn’t changed, but investor perception has. Whatever the cause of silver’s violent 30 percent plunge, the aftershocks of that move will likely continue for several months. Meanwhile, gold’s proven that its support won’t be knocked out so easily. Over the past month, the iShares Silver Trust ETF (NYSE:SLV) has shed nearly 18 percent of its value. The SPDR Gold Trust ETF (NYSE:GLD) has actually appreciated 0.4 percent during the same time span. That shows unflappable support for the yellow metal even as panic seemed to set in for commodities across the board. When the muck truly hits the fan, there’s nowhere safer than gold.

2) A ratio gone mad. There’s been a lot of speculation about the gold:silver ratio of late. Silver bulls like Eric Sprott of Sprott Asset Management – which manages the Sprott Physical Silver Trust ETV (NYSE:PSLV) and the Sprott Physical Gold Trust (NYSE:PHYS) – have been calling for titanic shifts in the ratio. Sprott’s actually argued that the gold:silver ratio could fall as low as 10:1 (meaning gold would cost just 10 times as much as silver). If that were the case today and gold stayed at $1,491 an ounce, we’d be looking at silver prices around $150 an ounce. Perhaps such a move will be possible over the course of several years, but don’t expect it over the next few months. Since the 1980s, the gold:silver ratio’s been closer to 60:1, which means $25 silver is just as likely as $150 silver (in fact, it’s probably MORE likely). In the words of Dave Kansas at the Wall Street Journal: “It’s more likely that the ratio will revert to modern-era norms rather than race back to the Napoleonic era.”

3) Silver ETFs push down prices. One of the most powerful drivers of silver prices today comes from physical silver ETFs. These stock market vehicles use the cash they get from issuing new shares to buy physical silver. Conversely, when the price of silver falls, ETFs like the SLV must liquidate their physical silver holdings to buy back shares. When the market’s trending up, the SLV can accelerate the rise in silver prices. During extreme silver sell-offs, SLVs decline floods the silver market with excess supply.

“On May 4th as silver plunged below $40, SLV experienced such heavy differential selling pressure that it was forced to liquidate 4.8% of its holdings in a single trading day!” writes Adam Hamilton and Scott Wright of the Australian investing site, TheBull. “This was 16.8 (million) ounces of physical silver that hit the markets!” That’s an enormous amount of silver. Hamilton and Wright point out that it’s 60 percent of Silver Wheaton Corp.’s (NYSE:SLW) silver output for an entire year, and it hit the market in 6.5 hours!

Gold’s stability in the face of panic selling in the silver market is evidence that gold holders have the stronger hand. More selling in the silver space, though, could be on the slate as the gold:silver ratio moves back toward reasonable levels. The ratio hasn’t fallen as low as it did last month in 30 years, after all. Interpret that how you may, but I see it as evidence of an anomaly that’s in the process of correcting.

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How much gold market manipulation do ETFs cause?

There hasn’t been a major downturn in gold prices since 2006 (when GLD was launched), and that means we haven’t seen the full destructive force of a bearish swing against GLD and other gold ETFs. If it ever happens, it could be downright brutal.

It’s hard to believe that a mere 7 years ago physical gold ETFs didn’t exist. The launch of the SPDR Gold Trust ETF (NYSE:GLD) in 2006, though, proved that there was a market for a simple, paper-based way to invest in gold bullion. The Gold Trust’s success spawned a mass of imitators, and now physical gold ETFs hold 2,100 tons of the metal in vaults around the world, according to The Globe and Mail.

Physical gold ETFs are particularly popular with hedge funds. Take John Paulson’s New York-based Paulson and Co. hedge fund, for example. As the single largest shareholder in GLD, Paulson’s fund holds some $4.3 billion in gold via the ETF. That’s good for 8 percent of GLD’s total value.

With so much capital tied up in physical gold ETFs, what happens when Paulson and other hedge fund managers decide they’re ready to unwind their positions? It’s the ultimate question, and it’s one that will likely lead to a lot of profits and a whole lot of losses (for people on the wrong side of the trade) in the future.

Some investors argue that gold ETFs have driven up prices for gold artificially fast by lowering the barrier to entry. As the share price in gold ETFs climb, those ETFs are forced to accumulate more physical gold bullion. That in turn puts upward price pressure on gold spot prices, which in turn leads more people to invest in gold ETFs, etc. That cycle leads to what some investors refer to as an echo chamber or a self-fulfilling prophecy on gold prices.

When sentiment turns against gold, then, the results could be ugly. Just as physical ETFs make it easy to invest in the yellow metal, it also makes it easy to sell. If enough gold investors dump their shares in GLD and other physical gold ETFs at the same time, spot prices for the metal could plummet with the fresh glut of supply. That in turn could lead more people to sell off their shares in GLD and related ETFs.

Not everyone’s convinced the effects of GLD are that powerful, though. David Franklin, an analyst at Canada’s Sprott Asset Management, tells The Globe that money flowing into ETFs has likely just come at the expense of investing in gold mining stocks. Juan Carlos Artigas, an investment manager with the World Gold Council, points out that ETFs account for just 8 percent of global gold demand. Contrast that with jewelery demand, Artigas says, which holds a 50 percent share and coin demand, which drives about 25 percent of gold demand.

Both are valid points that seem to indicate ETFs aren’t manipulating markets as much as people might think. I buy the arguments for the most part, but recognize that they’re just theories. There hasn’t been a major downturn in gold prices since 2006 (when GLD was launched), and that means we haven’t seen the full destructive force of a bearish swing against GLD and other gold ETFs.

I imagine if John Paulson sold off a large stake in GLD, a lot of investors would follow suit, and the results wouldn’t be pretty. Sure, the hedge funds will have nice returns, but the man on the street might end up sitting on a collection of gold that’s worth a fraction of what he paid. I don’t see that happening anytime soon, but when it does, I hope to stay well clear of the carnage.

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Top 10 best gold and silver ETF funds

Here’s a look at the Top 10 best gold and silver ETFs on U.S. exchanges ranked by volume. The iShares Silver Trust (SLV) trades more than twice as many shares as its nearest competitor GLD.

Here’s a look at the Top 10 best gold and silver ETFs that trade on major U.S. exchanges. We’ve ranked them by volume, as some of the niche ETFs in the precious metals market are so thinly traded they can be subject to extreme price volatility or – in some cases – underperformance when compared with the underlying commodities they’re supposed to track.

iShares Silver Trust (ETF) (NYSE:SLV), Volume 38 million shares The world’s largest silver ETF, the iShares Silver Trust currently holds 10,764 metric tons of silver. That’s a lot of ingots. The SLV is the second-strongest performer on our list of the Top 10 gold and silver ETFs, getting shown up only by the Ultra Silver ETF (a double-long silver ETF). With an average volume around 38 million, SLV is easily the most active gold and silver ETF on the market. 12-month performance: +107 percent

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SPDR Gold Trust (ETF) (NYSE:GLD), Volume 17.4 million shares Among the most well-known ETFs on the exchanges, it’s more common to hear the SPDR Gold Trust referred to by its ticker: GLD (that’s when you know you’ve made it). The GLD currently has a market cap of more than $56 billion. 12-month performance: +26 percent

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Market Vectors Gold Miners ETF (NYSE:GDX), Volume 5.8 million shares The GDX seeks to mirror the NYSE Arca Gold Miners Index – an index that’s weighted toward large-cap gold mining stocks. The index’s single largest component stock is Barrick Gold Corporation (USA) (NYSE:ABX), which makes up nearly 17 percent of the index’s weighting. 12-month performance: +29 percent

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iShares Gold Trust (ETF) (NYSE:IAU), Volume 5.2 million shares A physical gold ETF, the iShares Gold Trust has largely played second fiddle to GLD. IAU has a market cap of $5.4 billion while GLD’s market cap exceeds $56 billion. 12-month performance: +26 percent

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SPDR S&P Metals and Mining (ETF) (NYSE:XME), Volume 2.8 million shares The SPDR S&P Metals & Mining ETF mirrors the S&P Metals & Mining Select Industry Index by buying baskets of shares in metals and mining stocks. The index is comprised not just of precious metals but steel, coal and consumable fuels, aluminum and other metal and mining-related stocks. Most recently, the ETFs largest holding was Australian iron ore and coal producer Cliffs Natural Resources Inc. (NYSE:CLF), which made up 4.71 percent of the fund’s holdings. 12-month performance: +26 percent

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Market Vectors Junior Gold Miners ETF (NYSE:GDXJ), Volume 1.8 million shares The Market Vectors Junior Gold Miners ETF mirrors the Market Vectors Junior Gold Miners Index. Since the Junior Gold Miners Index is comprised of small- and medium-cap gold mining stocks, the GDXJ is subject to more volatility than the GDX, which is geared toward larger mining companies. When the industry’s doing well, GDXJ does even better. 12-month performance: +53 percent

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ProShares Ultra Silver (ETF) (NYSE:AGQ), Volume 1.59 million shares The AGQ ETF invests in silver futures and forwards as it seeks to return 2X the daily returns of silver as measured by the U.S. Dollar fixing price for delivery in London. It’s a very bullish bet that silver’s going to rise in the coming days. Just don’t be caught holding it if sentiment shifts away from the metal. 12-month performance: +266 percent

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PowerShares DB Gold Double Long ETN (NYSE:DGP), Volume 476,000 shares DGP invests in gold futures contracts as it attempts to return 2X the daily price of gold bullion as measured by movements in the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold. 12-month performance: +53 percent

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ProShares Ultra Gold (ETF) (NYSE:UGL), Volume 223,000 shares UGL seeks twice (200%) the daily performance of gold bullion by investing in gold futures and forwards. The fund has shot up 12 percent over the past month. 12-month performance: +51 percent

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ETFS Gold Trust (NYSE:SGOL), Volume 151,000 shares SGOL is designed to reflect the performance of the price of gold bullion backed by physical gold that’s held in Zurich, Switzerland. The fund’s physical gold conforms to the London Bullion Market Association’s (LBMA) rules for Good Delivery. 12-month performance: +26 percent

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Honorable Mention: Direxion Daily Gold Miners Bull 2X Shares (NYSE:NUGT), Volume 28,500 shares The newest of the offerings on our list, NUGT seeks to return 200 percent of the price performance of the NYSE Arca GoldMiners Index. Interestingly, the fund counts GDX (another gold mining ETF listed above) as its largest holding. 3-month performance: -4 percent

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Top 10 best stock sectors for 2011

One of the toughest parts of investing is being in the right stocks at the right time. Here are the Top 10 sectors that I believe have the best prospects for a break-out year in 2011.

One of the toughest parts of investing is being in the right stocks at the right time. In general, sectors move together on a combination of factors: the macroeconomic outlook, changes in demand, materials costs and the regulatory outlook among other things. Based on those considerations, here are the sectors that I believe have the best prospects for a break-out year in 2011:

1) Rare earth stocks. Rare earths mining companies seek out or dig up deposits of rare earth metals – a collection of 17 chemical elements that are increasingly used in high-tech products from iPhones to wind turbines and electric vehicles. Rare earth stocks exploded upward at the start of the year on news that China is hacking exports of the metals by 35 percent through the first six months of 2011. That’s not good considering the fact that China produces 95 percent of the world’s rare earths supply. Rare earth mining stocks outside of China will have to make up for the plummeting supply in coming years. While shares in rare earths companies have cooled off recent weeks (putting several of them in the red since the start of the year), I fully expect the long-term trend to be intact. Among my favorite stocks in the sector? Avalon Rare Metals Inc. (AMEX:AVL), which is up 19 percent on the year.

2) Technology IPOs. A number of multi-billion dollar technology IPOs appear to be on the slate in 2011. From LinkedIn to Groupon, expect lots of press, surging prices and a good opportunity to make a quick buck. Check out my unofficial tech IPO calendar for 2011 to see all the tech companies that might IPO this year.

3) Oil stocks. Political turmoil coupled with rising demand pushed oil over $100 a barrel in London for the first time in three years. The IEA expects demand to grow 1.7 percent to 89.3 million barrels this year, and that’s pushing up share prices for the majors and small-cap exploratory companies as well. Shares in Exxon Mobil Corporation (NYSE:XOM) are up 13 percent since the start of the year.

4) Precious metal stocks. It’s been a tough start to the year for gold and silver as investors have cheered corporate profits and robust consumer spending. That’s had some predicting gold’s peaked, but I’m convinced the long-term outlook for gold – and particularly silver – is still up. Central banks became net buyers of gold last year, and they’re expected to continue that trend in 2011. The SPDR Gold Trust (NYSE:GLD) is down 4.5 percent and the iShares Silver Trust (NYSE:SLV) is up 2 percent since the start of the year.

5) Fertilizer stocks. Rising food costs are the product of inflation and rising demand. As producers try to cope with growing demand, they’ll rely on phosphates, nitrates and potash to try to squeeze more food out of the same acreage. That’s caused an explosive surge in small-cap phosphate exploration stocks. Allana Potash Corp. (CVE:AAA) is up more than 100 percent since the start of the year. Bellweather fertilizer stocks like Potash Corp. (NYSE:POT) and The Mosaic Company (NYSE:MOS) are both up more than 20 percent as well.

6) Copper stocks. The looming threat of a supply crunch has helped push copper prices above $10,000 per ton for the first time in history. Analysts are calling for a worldwide deficit of about 500,000 tons of copper this year, and that will help propel copper mining stocks after what’s already been a great start. Shares in small-cap and mid-tier copper stocks have performed the best to date with Augusta Resource Corp. (AMEX:AZC) rising 21 percent YTD.

7) Uranium stocks. Uranium prices have been on a tear rising 70 percent in the past seven months. In January alone, the spot price for uranium shot up 17 percent to $73 a pound. Uranerz Energy Corp. (AMEX:URZ) in particular has been shining with its shares up 35 percent this year. As countries around the world look to go green, nuclear power will get less press than wind and solar, but it will likely be the backbone of any plan to move away from coal.

8) Coal stocks. Flooding in Queensland and rapidly-growing demand in China have led to a surge in coal prices around the world. If oil prices remain high, coal will be the go-to substitute for power generation in many countries around the world. Year-to-date, the Market Vectors-Coal ETF (NYSE:KOL) is nearly flat, but its up almost 40 percent over the past six months.

9) Blue chip stocks. As the dollar begins falling relative to currencies in other countries, shares in high-quality, blue-chip U.S. stocks begin to look very attractive – particular blue-chip stocks with international exposure. The beneficial exchange rates should make U.S. exports look more attractive and will overfill the coffers at America’s biggest corporations. Shares in General Electric Company (NYSE:GE) are up more than 19 percent since the start of the year.

10) China e-commerce stocks. A recent report by Credit Suisse predicts that e-commerce will grow by 400 percent through 2015 in China. With most of the leading Chinese retail sites in private hands, investors on American exchanges don’t have a whole lot of options to cash in on the trend outside of the Amazon-like site E-Commerce China Dangdang, Inc. (NYSE:DANG). Taobao.com controls 75 percent of all e-commerce transactions in China. If they IPO in 2011 or 2012, I’d recommend cleaning up your portfolio and taking a long position.

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Five stocks picks for 2011 from John Paulson

After returning as much 590 percent betting against mortgages in 2007, John Paulson’s looking toward precious metals, energy and housing in 2011.

Hedge fund manager John Paulson became an icon in the investing world when he made a huge wager against subprime mortgages in 2007. That year, his funds gained as much as 590 percent, according to the Wall Street Journal.

Paulson’s 2010 returns ranged between 11 percent and 45 percent compared with the 15 percent gain the S&P locked in. That was enough to net Paulson himself some $5 billion. Here’s a look at where he’s making his bets for 2011:

1) Precious metals. For several years now, Paulson’s been urging investors to buy gold. Just based on monetary expansion alone, he said last year, gold could hit $2,400 an ounce. Tack on significant inflation on top of that, and gold prices at $4,000 an ounce aren’t out of the question. Paulson’s gold positions in 2010 netted him a return of 45 percent, and he’s still optimistic that gold will outperform for the next 5 years calling it “the ideal vehicle to hedge against the risk of the U.S. dollar,” Forbes reports.

Among Paulson’s biggest gold positions last year were AngloGold Ashanti Limited (NYSE:AU), Osisko Mining Corp. (TSE:OSK) and the SPDR Gold Trust ETF (NYSE:GLD). Currently, his funds own securities that represent the rough equivalent of 96 metric tons of the metal, according to the New York Times. That’s more gold than the Australian government holds.

2) Internet security. Of the top positions initiated by Paulson as of Sept. 30, 2010, McAfee, Inc. (NYSE:MFE) made the list. McAfee, which makes antivirus software, firewalls and other software-based security for computers, made headlines after a buyout by Intel Corporation (NASDAQ:INTC) was announced in August. Paulson’s reputation as a macroeconomic investor makes it clear where he sees big opportunities for growth: protecting data from hackers.

3) Oil and natural gas. Paulson has jettisoned his position in banks in favor of energy stocks. Chief among his energy holdings going into 2011? Anadarko Petroleum Corporation (NYSE:APC), the Texas-based oil and natural gas producer. It’s returned 20 percent over the past three months.

4) Biotechs. Genzyme Corporation (NASDAQ:GENZ) also made the list of top stocks that Paulson was acquiring late last year. Another buyout target, Sanofi-Aventis SA (NYSE:SNY) appears close locking in a deal to buy Genzyme. Trend anyone?

5) Housing. Paulson argued late last year that it was the best time to buy a house in 50 years. “If you don’t own a home, buy one,” he said at a lecture for New York’s University Club. “If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home.” Can’t buy a home? Consider some beat-down real estate or construction stocks. A few good picks and you, too, might be on your way to earning $5 billion a year.

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Gold price target in 2011: $1,800+

How to short gold

Not convinced that gold’s upward march in price is going to continue? One of the best ways to profit in that scenario is to short gold. There are several ways to go about it from puts and options to ETFs and shorting shares.

Not convinced that gold’s upward march in price is going to continue? One of the best ways to profit in that scenario is to short gold. There are several ways to go about it:

1) Short shares in a gold stock. Find a gold company that seems particularly overbought and start a short position in that company.

2) Short shares in a gold ETF or ETN. The flagship gold ETF is offered by ProShares. Known as the SPDR Gold Trust (NYSE:GLD), the ETF seeks to reflect the spot price of gold. As of Sept. 7, the fund had a market cap of $51 billion.

3) Buy shares in an inverse ETF or ETN. Inverse ETF’s seek to move in the opposite direction of the underlying stock or commodity that the fund is matching. ProShares UltraShort Gold ETF (NYSE:GLL), for example, seeks 2X the inverse of the daily performance of gold bullion in London. A small move in the gold spot price would be compounded 2X in GLL.

4) Buy and sell a put option in gold. A put is a bet that the future price of gold will be lower than the current market price. You can buy and sell puts and options at most online brokerages. Options, however, aren’t as heavily traded as stocks, and may involve substantial risk.

Keep reading: How to Short Gold, Part II

Things looking up for SPDR Gold Trust (NYSE:GLD)?

A mid-day pop in the SPDR Gold Trust (NYSE:GLD) could have been pointing to a good day today.

After the close of the New York NYMEX last night, the price of spot gold started a slow climb that might have been hinted at in yesterday’s mid-day pop in gold prices. The pop is evident in this five-day SPDR Gold Trust (NYSE:GLD) chart:

The jump in pricing occurred around the time the June retail sales numbers came in. The news was bad, of course, with a 0.5% decline. Negative sentiment in Asia seemed to be pushing gold prices higher.

“I’m bullish for gold, with the metal seen attempting to rise as far as $1,240 in the coming week,” Hong Kong’s director of Asia commodities Wallace Ng told Bloomberg Business Week. “Still, a major breakout to another record may be difficult for the present.”

Around 11:30 p.m. last night, the metal was trading at $1,211 up from an intraday NYMEX low below $1,205. A bevy of bad economic news may put further upward pressure on gold prices. The central tendency growth forecast was lowered to a range of 3 percent to 3.5 percent, U.S. industrial production will post a drop and China’s GDP is showing signs of slowing as the government there tries to rein in growth.

All that paints a gloomy picture for stocks and a rosy one for gold. If the stimulus isn’t working, after all, we’ll likely see a bit of deflation before governments are forced to inflate currencies in a malingering economic environment.