Having attracted the attention of the media with its record braking run to top $1000/oz, it will be interesting to see just how many of those watching will view this correction as a buying opportunity?
A number of investors will have rushed into gold and its associated mining stocks recently, possibly worried that they missing out on this sparkling bull market. The trend is your friend etc., until the trend is broken. However, timing an entry into the market is also very important especially the precious metals market where corrections come quickly and cut deep when they happen. So, if you have just recently made an investment and can afford to wait a while, then you should be okay, as we believe that this bull has a long way to run yet and prices will be a lot higher by the end of the year. Corrections are good and are necessary in any bull market so hang on in there.
The team here have been reluctant to purchase of late as the stock prices and gold itself were a long way from the buy zone. Nor were we fully invested as our strategy was to buy throughout the summer until we were 100% invested and then take some profits off the table where appropriate. In doing this we reduced our exposure to around 87% invested in precious metals and around 13% in cash. This cash is what we regard as our 'opportunity cash' and is needed for an occasion such as this. We now have to re-assess the situation and look for gold mining stocks that have been oversold and hopefully find a bargain or two. In adopting these tactics we hope that our trading account can add some traction in terms of profits generated, to our core position which will remain in place until the final blow off. As we have mentioned in the past the speed of communications worldwide and the increased use of the internet will add a whiplash effect to the final blow off. As with this pull back, it has been watched 24/7 and a trade is only a click away. Prepare yourself for severe pull backs and faster recoveries as a 'rocking motion' sets in with size of the oscillations increasing in magnitude as we go forward.
Interesting to note that despite a rate cut the US Dollar is staging a mini rally, however we don't expect it to last too long but it could hamper gold's recovery. Also watch the MACD on the dollars chart as the black line looks to be about to cross the red line which usually indicates positivity ahead.
As for gold, well when the gold price runs way ahead of the 200 day moving average it does give us cause for concern and we have pointed out that this disparity could not last. By narrowing this gap we can hopefully make future purchases with a little more confidence that the downside is some what limited.
Stay on your toes and read as widely as your time allows in order to detect the changes in direction of this, the most interesting game in town!
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