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« Gold, Silver, Uranium: New Blood Required | Main | High River Gold Mines: BUY »

The HUI: Don’t Sell Now!

Its mid May and the HUI has come down from 370 to 330 in a few short weeks so should we sell our gold and silver mining stocks you ask?

Well take a look at this chart of the HUI and what do you see? Answer, a consolidation pattern covering the last six months with three highs and three lows. Where is the HUI now? It is sitting on its 200-Day Moving Average as it forms its third low of this period. What about the technical indicators? The RSI, MACD and the Stockastics are in negative territory suggesting that the HUI is now over sold.

Chart of the HUI:

The HUI Chart 15 May 07

We could see the HUI drop a little below its 200-Day Moving Average as the traditional summer doldrums arrive. A move much below the 200 DMA will be uncomfortable for some and positively gut wrenching for others. We all know that the time to sell is during a rising market and on good news. When the market goes the other way as the HUI is doing now we should be looking for suitable entry points for our favourite gold and silver mining stocks. If you are just about fully invested as we are, then in our opinion it is time to sit on your hands and do nothing. To sell during this formation of a third low is to give others the opportunity of grabbing a bargain off you!

If you must fiddle with your portfolio to achieve a sense of doing something then by all means indulge yourself in a little rebalancing. But make sure that your investment cash raised from a few minor sales goes back into other good quality stocks. Do not be caught vacillating as this market can easily bounce back taking most of us by surprise just as gold did when it recently took a second charge at the $700.00 level.

We remain extremely bullish on gold and silver and are of the firm opinion that by Christmas the levels we see the HUI at today will be history. The ‘ Wall of Worry’ remains there for us to climb so if you can hang on we are sure that it will be worth it eventually.

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