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« Banks: In the frame! | Main | SKF: Increased Our Position »
Tuesday
Mar252008

GOLD: Your Day Job Can Wait!

Having fallen around $100/oz and scared a few investors along the way, we now see gold resuming its march north with considerable gusto!

As we write gold is trading in Sydney at $941.60 which is around $70/oz below its recent peak but in percentage terms it is only 7% below its peak, which isn't too bad. We had warned that gold was running ahead of itself and that there was a strong possibility of a pull back which was our basis for suspending buying and waiting for a cheaper entry level.

The question we now have to wrestle with; is this it? Gold has suffered a severe sell off, but has managed to bounce back to regain about 1/3rd of its loss. We did say to expect volatility and that is just what we are being served. Judging from our mail bag there are a number of nervous investors out there who have fingers on both the buy and sell buttons! Yes, there are trading opportunities to be had for those who are fast enough, but do remember that this is still a bull market and it is better to be in it then be out of it. Erratic gyrations will continue as every news release is interpreted as either an all clear signal and the big bad wolf has been laid to rest or another once fabled institution needs a life raft. The mainstream camp has a large band of supporters, control of the mint, political influence etc. The precious metals camp is comparatively small in numbers, unable to stop the mint from printing currencies and has very little political influence. However, gold has continued to grow steadily higher since 2001. The support for the precious metals continues to grow and the momentum is building. The media coverage is slowly becoming more frequent although gold is looked upon, at times, as having a novelty or curiosity value only, then the commentary returns to the comfort zone. None of us want to experience the disruption that is coming down the line but we cannot ignore it and have to take the appropriate action. The inability of currencies to hold their value, the lack of discipline in the financial sector combined with the political inability to administer the medicine drives the search for a safe haven. The worse it gets the more gold will be the benefactor, its that simple.

Taking a quick look at the charts, we have first up the US Dollar. After the latest rate cut the US Dollar strengthened, strangely enough! However this is akin to tying to swim up a waterfall and as we can now see has started to falter.

US Dollar Chart 26 March 2008


Second up we have gold itself, having been clobbered is now off the canvass and fighting back.

Gold Chart 26th March 2008

It is difficult to say for definite that gold will continue upwards without interruption, but we are going to be placing buy orders for precious metals stocks. We are not rushing out and paying the market price for stocks today but we will be placing at prices that represent value to us. March is all but over now, so in a few weeks we will be into the month of May, a window in the calendar when some investors sell regardless of the trading environment. So, if you have a few favourite precious metals stocks that you are itching to buy now, then do so in the knowledge that it could be a bouncy ride . That said we are of the firm opinion that this summer could well be the last time that we see such low prices and cheap mining stocks. Again, from Labour Day onwards we will see a rally that will surprise us all with its speed and magnitude. So the most important thing to do over the coming months is to establish your core position in this market and then hang on to your holdings.

We will of course utilise our trading account to try and take advantage of market aberrations and short term opportunities which will no doubt give you a chuckle or two.

Finally, don't go back to sleep, you have work to do. Review your portfolio today, decide where you need to strengthen it and what you are prepared to pay to secure your position.

Your day job can wait!

Have a good one.

If you are new to this site and wish to receive our free newsletter regarding investment in the precious metals sector then please click this link.


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Reader Comments (23)

I wonder if you have certain gold stock recommendations. Is there another web site for this? I am having trouble finding the appropriate junior and larger stocks to buy.

March 26, 2008 | Unregistered Commenterron mepham

HHMM ,This IS a tough one!!Looking at the gold stocks themselves, I feel slightly that they are slammed down with volume, bouncing now a bit , then a retest of the high volume recent lows and also fill a few gaps there, then off to the races again for april may highs. THAT is my humble opinion..I am hoping to buy back at the gaps on AUY and HL . Happy trading

March 26, 2008 | Unregistered CommenterRobert

Ron, We will update our portfolio soon, which resides under categories if you wish to take a look. We publish our portfolio and every trade we make.

March 26, 2008 | Unregistered CommenterGold Prices

Robert, Yes it is a tough one, do let us know when you decide to jump back in.

March 26, 2008 | Unregistered CommenterGold Prices

Well , thanks for asking, I'll tell you what I'm looking at. On AUY, I was looking at the gap at about $15.50, but todays volume down was a bit heavy..so then I noticed that if you connect AUY's sell off Low of AUGUST to the sell off low of Dec and then continue to current date...it hits the 200day m.a. and then a parallel line across all the highs for 6 months..leads you to the channel with the low at $14.20ish area.BUT.. I am SO gold BUllish...I hate to think of AUY going that low again , so I am buying 1/2 position at the gap, and if it does go that low, I will buy another 1/2 position down there ...all this depending onTHE VOLUME on the way down. If it goes below the low of march 20 low with less volume,(volume dries up on the way down, seller are out) I am all in at that point. : ) and thank you GOLD_PRICES.BIZ for great charts and commentary!!

March 27, 2008 | Unregistered CommenterRobert

update to my post March 27: volume was too high in AUY today for my liking , so even though the gap was filled , I did not add a position...YET! Great fundamentals but this one looks to be going to the lower trend line taken from the Aug lows and Dec lows , patience is going to be a firesale on a great stock I believe.

March 27, 2008 | Unregistered CommenterRobert

I'm not yet convinced the pullback in gold is over. We could be in the throes of an ABC correction with more downside towards the 200 MA to follow. Given the general correction in commodities and the way the precious metals responded to "only" a 75 point rate cut, I am looking for a weekly spot close above the $960-70 area before being convinced. Happy to forego the first 30 odd points of any rise to confirm it isn't a bull trap,,,,,,,

March 30, 2008 | Unregistered CommenterBob

Team, Thanks for your input - we are not convinced yet either that its over, but we are actively seeking buying opportunities for when the bottom arrives.

March 30, 2008 | Unregistered CommenterGold Prices

well, I liked what I saw today in AUY, so I bought a 1/2position. Today at noon it looked like a 'last engulfing pattern' , volume was lighter compared to the last time down , but most of all I went by drawing a trendline off of the August sell off low , to the december sell off low , and it went right to todays low, also around the 200 e.m.a.(offering support) R.S.I. is as low as it was for Dec low .This ( to my trading personality) is great risk /reward , though I may be a tad early. Even though I feel that AUY COULD go a bit lower, maybe even gap below that trend line tomorrow... I can place a stop somewhere below, anticipating that really this is near AUY's bottom for now. Stochastic hasnt turned up , but I feel this is the near term bottom..I am 1/2 in. ( and scared :-)

March 31, 2008 | Unregistered CommenterRobert

I guess you and I are on opposing sides Robert as I bought some more AUG puts. I would normally wish you good luck with your trade, but maybe not this time :)

Bob

March 31, 2008 | Unregistered CommenterBob

That should read AUY puts,,,,,,

March 31, 2008 | Unregistered CommenterBob

Excellent, thats what makes a market, right? Bulls and Bears. I do feel that Gold could pull back to $850 , but the Xau:gold ratio is in an area where Large rallies have begun( below .21)
HHMM,and the stochastics are SO oversold on AUY. How about a bounce and I get out at the gap near $16.25 if it's light volume, then we might see a head & shoulders form...and I'll join you. :) best wishes Bob

March 31, 2008 | Unregistered CommenterRobert

Lots of smiling faces - good!

April 1, 2008 | Unregistered CommenterGold Prices

Yesterdays bounce off the 200 d.m.a. caused me to buy the other half of my position in AUY. The stochastics were SO oversold , and I drew a trend line from Dec sell off low and Aug sell off low , it went straight to yesterdays close. I think we saw our April sell off low yesterday.Gold down $30 , auy closed down ONLY about 50 cents!! I will watch the volume and hope it increases as the price rises. The slow stoch crossed up today , watching ( but not waiting for ) the Macd to do the same. :) You can read my other comments posted here #9 and #12 for more reasons to buy. happy trading guys

April 2, 2008 | Unregistered CommenterRobert

Hey Robert, looks like we're in agreement this time :) I sold my puts yesterday as I thought we were in for a wee bounce of the back of what the broader markets were doing. Currently playing the long side with calls and some warrants off the TSX. Reserving the right to change my mind at any time however,,,,

April 2, 2008 | Unregistered CommenterBob

Wonder if you are interested in these gold ETF's (200% exposure). Probably higher risk than gold stocks???

Thanks for your attention.

ep

April 3, 2008 | Unregistered Commenterep

ep,

Yes we have been keeping an eye on this new ETF as it could be a viable investment vehicle to trade this gold bull market. The only reason we did not invest in regular gold ETF's is because we wanted to maximise our leverage to the gold price, but this 200% leveraged ETF appears to be a good idea, and is looking even better with the less than brilliant performance of many gold stocks relative to the massive rise in gold prices we have seen recently.

We are not sure whether these funds are necessarily higher risk that gold stocks, remember than the ETF doesn't carry the risks of mining and exploration, such as geo-political instability in many mining regions, the possible of technical problems with the operation of the mine and rising production costs due to higher oil prices etc.

However it is still early days for the fund and we are still watching to see if it can live up to its performance claims on the trading floor!

So we are watching with interest for now.

April 3, 2008 | Unregistered CommenterGold Prices

Reply to Bob on comment #15...Trust me , I am nothing but happy whenever someone reports TAKING $$ FROM the market, rather than the other way around!! I imagine the puts went well , hopefully the calls and long side will too , and I wholeheartedly agree with your final statement , "Reserving the right to change my mind at any time however,,," That is the only way to stay ahead in a volatile market like we are seeing :) best wishes

April 3, 2008 | Unregistered CommenterRobert

Agreed! We really enjoy it when one of our readers pops up with some good news - it gives us all a buzz. So,if you have slogged the market for a few bucks then please let us know about it. Cheers!

April 3, 2008 | Unregistered CommenterGold Prices

Care to check this out?

GTU.UN is a closed-end fund, slightly different from the other ETF's.

Yes, I agree that there are risks with mining companies. Look at Eldorado, the Turkish government ordered them to close the mine. But the kind of risk I have in mind is different. When there is 200% exposure, I can help thinking of the 'L' word (i.e. leverage). I don't have a clue how it is done and how an investor can be affected. Horizon didn't explain to me in detail. If I remember correctly, they casually mentioned 'swap agreement with one of the banks.'

Maybe you can help us understand how the 2:1 ratio is achieved. Any derivatives?

Thanks.

ep

April 4, 2008 | Unregistered Commenterep

Yes we are familiar with GTU.UN and we have great respect for John Embry who is Co-Chairman & Trustee of the fund.
For those not familiar with the Central Gold Trust, it is a fund which buys physical gold bullion and stores it on behalf of shareholders. Unlike some ETF's this fund only holds physical gold bullion, no options, gold futures or other gold investment vehicles.
However if you really want to own physical gold bullion, then we think the better option is to buy it yourself.

Regarding the new gold bull and bear ETF's: HBU and HBD, we do not know the specific technical details of how these particular funds achieve their leverage. However we would guess that they work in a similar way to SKF (an inverse financials ETF with leverage of 200% that we have a position in) which holds a basket of different options and futures contracts as well as derivatives. These funds tend to reserve to right to buy anything the manager thinks will achieve its performance aims.
The theory is that the ETF takes some of the risk of derivatives etc away as the investor does not have a time limit, ie his/her ETF holding will not expire as many options and other derivatives do.

As for now we are waiting to see if this new ETF can live up to its performance on the trading floor.

April 4, 2008 | Unregistered CommenterGold Prices


Have you read this? http://setup2.barrons.com/article/SB120697331965877077.html?mod=9_0033_b_markets_main_collection

Please note the very last paragraph. We are so close to May. Will "sell in May" happen this year? If this correction lasts for months and not weeks, we can still "swing" when we don't buy and hold???

ep

April 4, 2008 | Unregistered Commenterep

Great reading! One of the original "ETFs" is the Central Fund. CEF. It holds 50%Gold/50% silver in Canadian Bank Vaults.

http://www.centralfund.com/

No leverage, but it's been good to me over the last 2 years.

Cheers
Jeff

April 12, 2008 | Unregistered CommenterJeff Gibson

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