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« Options trading: A few notes! | Main | Gold, Silver, Mining Stocks and the US Dollar! »
Monday
Jun302008

Gold Stocks: Too far, too fast!

HUI Chart 01 July 2008

The resurgence of gold stocks driven by a leap forward in gold prices, which was triggered by the absence of a rate increase for the US Dollar, might have driven gold stocks too far.

Fresh from our successful foray into the options arena with our trade on Kinross Gold Corporation our ‘opportunity cash’ sits idly on the sidelines looking for deployment. The question is where to now? We are precious metals bulls and this is a multiyear bull market so on that basis we should be buying stocks, which we have been doing and putting a few quid into Call Options which we also have been doing.

However, as we scan the horizon for such opportunities we see that the charts are suggesting to us that a number of these gold-producing stocks are firmly planted into the overbought zone. Such stocks as Agnico-Eagle Mines Limited, Yamana Gold Incorporated, Barrick Gold Corporation and Kinross Gold Corporation all appear to have extended themselves a tad too far. So we ask ourselves is this an opportunity to go for a quick trade as we are now anticipating a minor u-turn as these stocks take a breather? The more rational approach, maybe, would to be to allow the u-turn to unfold and re-position ourselves in the market in anticipation of the next move to higher gold prices. This is the problem that we are wrestling with today, a very nice problem, but nevertheless a difficult one.

Taking a quick look at the HUI we can see the following:

The HUI has progressed from 400 to 450 in a few short weeks for a gain of 12.5%. The 200mda is rising to support this move, which is a positive sign for the longer-term outlook. A popular moving average with some analysts is the 65dma, which is seen here as levelling out however the 50dma is still heading south. The RSI is high and looks to be levelling out at the moment and the MACD has room to go higher but the Stockastics are close to the ceiling. All in all we interpret these technical indicators as suggesting that a breather is more likely than further immediate progress.

We need to do some more work before jumping either way at this juncture so we will do just that and try to arrive at a conclusion that we can act upon as soon as possible.

Until then, have a good one.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to the Free The Gold Prices Newsletter, completely FREE of charge.

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Reader Comments (4)

I loaded up with gold shares on Monday and ended up selling on Friday for a 12.5% profit. Not bad for one week! I was planning on holding longer, but I couldn't shake the feeling that we'd see a pullback because of the $HUI's rapid ascent. I suppose I'm a long-term trader with a weakness for short-term profits. (There are worse investment vices out there.)

Oh, and congratulations on your KGC and HL call trades! HL sure made you work for it, but patience paid off in the end. GOLD was a great buy too. I missed that one unfortunately.

July 1, 2008 | Unregistered CommenterDBR

I have been following you for a while and doing homework on the stock you write about. When your buy came out a few days ago, I was comfortable with HL, PAAS & KGC and I bought Jan 09 calls on all of them. Not sure why I passed on GOLD. Per your model, I put in sell orders just after the buy. I am out of the KGC and PAAS options and watching HL.

The real value of your newsletter is for people to follow and do homework on the stock mentiond. That way they know their own comfort level when a possibility like this comes up.

Looking for the next issue - BC (Tampa USA)

July 1, 2008 | Unregistered CommenterBC

I'm new to options. There are so many services charging hundreds or thousands of dollars, you'd have to really nail a few just to recoup your money.

Have you guys been making money with these gold recs, and are these really provided free of charge?

What, if any, gold or silver option recs are there I could purchase right now?

July 31, 2008 | Unregistered CommenterMonnie

Monnie,

Yes we are making money and yes the newsletter and the alerts are free. You can look over the site to which options we are in and why. Please remember that investment decisions are yours and yours alone, our stategies suit us but will not suit everyone.

Good luck with your trading activities.

August 2, 2008 | Unregistered CommenterGold Prices

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