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Jun222008 Portfolio Update 22 June 2008

Gold Chart 22 June 2008

This months highlights include taking profits on Yamana Gold Incorporated, purchased shares in Randgold Resources Limited and acquired Call options in Kinross Gold Corporation.

A quick look at gold’s chart shows that gold is continuing its sideways movement just above the $900/oz level. The 200-day moving average, (red line) is steadily rising and should provide support for the metal of kings. Also note that the MACD has turned positive for gold prices with the black line crossing over the red line in an upward movement. This is usually very positive for the underlying commodity as it is sometimes referred to as the golden cross.

Oil has hit record levels recently, which are regarded as inflationary, which in turn puts an upward pressure on gold. However gold appears to have ignored oil over the last few months and preferred to take a breather now that the summer season has arrived.

The US dollar appears to have found some support and is trying to rally with the support of a number of commentators predicting higher levels for the once mighty dollar. Alas this is nonsense, a rate hike would be devastating for real estate and the US economy, so despite the sabre rattling we do not believe a rate rise is on the cards and so the dollar will continue its trek south shortly.

A wild card in all this is the stability of the financial system. It is sailing along like a ship with large holes in the hull on a stormy night. Another credit crunch lies in waiting to scare us witless once again. No doubt the powers that be will answer the problems by increasing the liquidity in the system. As we have said before liquidity is not the answer to insolvency and such actions is the same as giving a drunk another drink or putting a fire out with gasoline. As investors in gold and its associated mining stocks we will need to steel ourselves during the next credit crunch as the dash for cash could well result in mining stocks being sold off regardless. We are prepared to take this possible hit as we believe the alternative of stepping outside of this bull market could see us left at the station when gold opens the throttle. The printing presses are the dollars suicide pill in our humble opinion. The more we print the less its worth and the same applies to many of the other major currencies.

The situation between Iraq and Israel continues to decline much to everyone’s regret. The chances of more military action in that part of the world appear to be increasing on a daily basis, which saddens us greatly. However upheaval and uncertainty tend to push people into buying gold as a last resort as it retains its value across the universe and is easily transportable.

Now is the time to put the extra hours in and determine which gold explorers and producers best suit your investment criteria. What follows in this update of our portfolio is what suits the small group of investors that we represent who have similar objectives to our own, but may not suit you. The final decision in these matters is always yours and yours alone.

Alongside our core position we try from time to time to identify short-term trades with the view of giving our funds an extra boost. We will cover these little forays first.

As you may recall we sold 50% of our position in Yamana Gold (AUY) at $16.50 as part of our February profit taking exercise. We re-purchased Yamana on the 3rd April 2008 at $14.43 in anticipation of a bounce creating a short term trading opportunity. On the 23rd May we decided to close this trade and sold Yamana gold for $16.00 generating a small profit of 10.88% in less than two months, Yamana closed on Friday at $14.72.

For those of you who interested in options trading on 13th June 2008 we bought Call Options on Kinross Gold Corporation (KGC NUSE) the JAN09 series at a strike price of $20.00 for an average of $2.68 and they closed on Friday at $3.00 for a gain of just over 10%.

A few days ago on the on the 16th June 2008 we made our first purchase of Randgold Resources Limited which we have tracked for some time but had not purchased as we were of the opinion that it was too expensive. However, the lacklustre market presented us with an entry point for our ‘opportunity cash’ to be deployed. So we acquired Randgold for an average price of $37.65 per share, having stated our intention to acquire this stock on June 3rd, 2008, in an article entitled, Randgold Resources Limited: Prepare to Buy! We have only held this stock for four days and it has managed to close at $40.42 on Friday for a gain of 6.8%. Randgold will reside in our core position unless it becomes dramatically overbought.

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%. Agnico Eagle closed at $64.94 on Friday.

Kinross Gold (KGC) we acquired Kinross at $10.08 and this stock now stands at $19.61, for a gain of 94%. 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 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%. As mentioned above we bought Call Options on Kinross Gold Corporation (KGC NUSE) the JAN09 series at a strike price of $20.00 for an average of $2.68 and they closed on Friday at $3.00 for a gain of just over 10%.

Silverado Gold Mines (SLGLF) we bought at $0.08 and it now stands at $0.045. We are disappointed in the poor performance of this stock. 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. According to Fox business news the company, and its legal counsel, are presently preparing the necessary documentation for filing, including Reports of Exempt Distribution, to satisfy the concerns of the BCSC, and anticipate that a further corrective news release will be issued in the immediate future.

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 arrived on the 23rd May 2008 and we sold for $16.00. This stock closed at $14.72 per share on Friday.

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;
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 $1.61 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 recently 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. We will watch for now.

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$4.52. 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.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

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Reader Comments (2)

I enjoy your newsletter very much and have a question / comment.

I bought the KGC 20 Jan calls along with you for $2.60. They are now worth $3.50 and I am considering selling the KGC 25 Nov calls for $1.25. I would plan to (likely in mid Nov.) roll the Nov 25 calls to Jan 25 calls. This allows me to collect premium twice ($1.25 now & some amount in Nov) and collect up to $5.00 in Jan. Even if KGC were to fall dramatically, the $1.25 would be locked in.

This looks better than the double you indicated for your sell point and allows me to harvest almost half of my original cost now to deploy elsewhere.

I would love to see your thoughts or comments about this possibility.

June 24, 2008 | Unregistered CommenterB


We like your strategy but it remains to be seen which one generates the best returns. What we have found in the past is that we have been more successful when we have kept the trade simple.

We need to get the main ingredients right, the direction of the underlying commodity, choose a stock that we believe is oversold and due a reversal and the option that allows sufficient time for the trade to come to fruition. This we find is a big enough challenge for us.

We are aware of the myriad of techniques used in options trading, which we find fascinating and have utilised in the past, however they can detract us from the main objective, which is to maximise returns.

Your trade sounds fine but a lot depends on which way the trade moves and when you decide to push the sell button. The exit strategy is very important as with any trade. Ours is a simple one, when it doubles, sell. No doubt human weakness will come into play and we will wrestle with the possibility of selling half and letting the other half run, etc, which should you give you a little chuckle!

Please keep in touch and let us know how it works out for you, we’re sure that our readers will enjoy reading about it and the more quality input we get the better informed everyone will be.

Good luck with it.

June 24, 2008 | Unregistered CommenterGold Prices

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