Gold closed at $905.00 last night, little change from our update on the 5th April 2008 when it was $913.70, having paid a visit to the $850 level in the mean time. Gold has experienced a fall of around $150/oz followed by a bounce of $50/oz or about a third of the fall. Despite the euphoria surrounding gold we still see some consolidation and sideways movement over the summer months. Gold is still $80 or so above its 200 day moving average so take care this current rally could be short lived. However, there will be some precious metals stocks that land up in the oversold zone giving us the chance to employ our ‘opportunity cash’ as we did last summer.
We have previously expressed our concerns about a correction in gold and we took profits on some of our gold stocks that were showing great gains from our multiple BUY signals over the summer. Details of these trades are mentioned in the update below.
One of the gold stocks that was hit the hardest was Yamana Gold. We sold 50% of our position in AUY at $16.50 as part of our February profit taking but we bought it back recently at $14.43 in anticipation of a bounce creating a short term trading opportunity. This trade is now showing a profit.
We have updated our portfolio to show where we stand on the various gold stocks that we follow and the trades that we have made.
Agnico Eagle (AEM) we paid $30.88 and it now stands at $69.31, showing a gain of 124%. On 31st January 2008 we reduced our exposure to this stock and sold about 50% of our holding for an average price of $63.27, locking in a profit of 104.8%.
Kinross Gold (KGC) we acquired Kinross at $10.08 and this stock now stands at $20.76, for a gain of 106%. Kinross went through a bit of a pull back so we signalled to our readers to “Add To Holdings” at those discounted levels of around $11.66. We also gave another ‘Kinross Gold BUY’ signal when we purchased more of this stock on the 20th August 2007 for $11.48. So this stock has roughly doubled in the six months since our last BUY signal. On 31st January 2008 we reduced our exposure to this stock and sold about 50% of our holding for an average price of $21.96 locking in a profit of about 93.60%.
Silverado Gold Mines (SLGLF) we bought at $0.08 and it now stands at $0.051. We are disappointed in the poor performance of this stock, despite the rise in gold prices.
The B.C. Securities Commission has issued a cease-trade order against the company, citing a host of filing deficiencies. This could be an administrative problem or something more serious; we will hold and monitor the situation.
Yamana Gold Incorporated (AUY: NYSE) we paid $9.37 on 27 September 2006, it is now trading at $15.22 for a gain of 62%. We bought again at $12.89 on the 7th December 2007 and so our average price is now $11.13. On 31st January 2008 we reduced our exposure to this stock and sold about 50% of our holding for an average price of $16.50 locking in a profit of about 49.41%. Then on the 3rd April 2008 we bought our Yamana position back at $14.43 in expectation of a bounce which we intend to trade for a small profit, this move now shows a paper profit of around $0.79 per share.
High River Gold Mines: (HRG: TSX) We bought this at $2.49 and we increased our position in the company on December 7th, 2007 when we wrote;
“Just a quick note that we have bought additional shares in High River Gold for an average cost of $2.57 in the past few days and we are signalling an additional BUY at these levels.”
We strongly believe in the company’s long-term fundamentals, especially with rising gold prices. However it has been a victim of this recent sell off, which has dragged the price down to $1.87 yesterday. HRG is a small gold company and so its stock price is very volatile, but this pullback is severe to say the least. We are watching the situation closely with the view to making an additional purchase; however, we do need to see some confirmation that it has bottomed.
On BNN today the company Chairman Mr Don Whalen openly discussed some of the company’s problems which higher operating costs, the loss of their Chief Operating Officer and delays to the production process. However he was confident about the future pointing to production last year of 140,000 ounces, this year 280,000 ounces, next year 350,000 ounces going to an estimated 600,000 ounces by 2012. Assuming that their current problems are now behind them we should see a gradual but constant improvement in the stock price.
Fronteer Developments Group (FRG) Fronteer was originally bought as both a uranium and gold play as FRG owns the lion’s share of Aurora Energy Resources making it a gold/uranium play. Fronteer is currently trading at US$4.57. Our original purchase was made on the 15 July 2006 at around the $4.70 level, which is now showing a small lose. On the 24th September 2007 we sold 50% of this stock for an average price of $10.44, banking a profit of 122%. Again we are looking for FRG to establish a bottom and present us with another buying opportunity.
This is a volatile sector of the market and there is nothing wrong with taking money off the table during the run up. Those trading decisions belong entirely to you as your circumstances are different from ours and we trade to suit our investment criteria. However, don’t be put off by us.
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