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« From Nausea To Euphoria, What a Day for Gold! | Main | Gold: Hanging by a Point! »
Sep142008 Portfolio Update 14 September 2008

Gold Chart 14sep08

We have not managed to update this portfolio since 22 June 2008 and we know it has been pulverised since then, largely due to the price of oil retreating and the US Dollar rallying to challenge its old highs.

A quick look at gold’s chart and we can see that a $200/oz drop in gold prices has dealt a hammer blow to the gold producing stocks. The technical indicators of the RSI, MACD and STO remain severely oversold so hopefully this sell off has now run its course.

Oil has retreated from around the $148/barrel level to trade at around $100/barrel recently, which has reduced some of the inflationary pressure on gold. However the $100 mark is both a technical and psychological support level, so perhaps the worst is over.

The US dollar has rallied to challenge its resistance level of ‘80’ but failed to get above it on Friday, which no doubt helped to support the gold stock prices. Despite the sabre rattling we cannot see that a rate rise is on the cards and so the dollar's strength will be tested shortly.

In the June update we wrote the following:

“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”.

Freddie and Fanny are the latest to fall victim of the credit crunch with others such as Lehman Brothers staggering along close to the edge.

We also wrote:

“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”

This has transpired but the severity of the sell off has gone beyond what we thought was possible.

Our portfolio as been updated as follows:

Randgold Resources Limited (GOLD) On the 18th of June we bought Randgold Resources Limited for $37.65. This stock quickly rallied to $55.00 before being caught in the ensuing sector sell off to close at $35.61 on Friday. We are back to where we started but will continue to hold and wait.

Agnico Eagle (AEM) we paid $30.88 and it now stands at $52.70, showing a vastly reduced gain of 70.66%. 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%. On the 24th July 2008 we bought again at $59.17 doubling our position with the average cost now standing at $45.03. Agnico Eagle closed at $52.70 on Friday.

Kinross Gold (KGC) we originally acquired Kinross at $10.08, Kinross then 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. On 31st January 2008 we reduced our exposure to this stock when we sold about 50% of our holding for an average price of $21.96 locking in a profit of about 93.60%. On the 24th July 2008 we doubled our holding with a purchase at $18.28 giving us a new average purchase price of $14.50. Kinross closed on Friday at $13.78.

Silverado Gold Mines (SLGLF) we bought at $0.08 and it now stands at $0.026. We are disappointed in the poor performance of this stock. The B.C. Securities Commission had issued a cease-trade order against the company, citing a host of filing deficiencies. On the 5th August 2008 this order was revoked the B.C. Securities Commission. However this stock continues to limp along for now.

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 moved up to $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. On the 11th July 2008 we bought again at a price of $14.95 taking our average purchase price up to $13.04. This stock closed at $8.57 per share on Friday, leaving us licking our wounds.

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 $0.60 yesterday, rendering another hammer blow to our portfolio. HRG is a small gold company and so its stock price is very volatile, but this pullback has been devastating. 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. We will hold and 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. On the 24th September 2007 we sold 50% of this stock for an average price of $10.44, banking a profit of 122%. Fronteer is currently trading at US$2.37, which shows the importance of taking profits in a bull market. Our original purchase was made on the 15 July 2006 at around the $4.70 level, which is now showing a large lose. Again we are looking for FRG to establish a bottom and make some progress.

Options Trades;

On the 28th June 2008 we sold our Call options in KGC for 100% profit, which was achieved in two weeks.

On the 24th July 2008 we re-purchased the KGC JAN09 Call options at a strike price of $20.00 for $2.50, they closed at $0.70 on Friday

Also on the 24th July 2008 we purchased the Yamana JAN09 Call options at a strike price of $12.50 for $2.25, they closed at $0.70 on Friday.

On the 06 August 2008 we purchased the GLD (gold EFT) JAN09 Call options at a strike price of $95.00 for $3.40, they closed at $1.00 on Friday.

On the 14th August 2008 we purchased the Agnico-Eagle JAN09 Call options at a strike price of $60.00 for $5.50, they closed at $4.62 on Friday.

As we can see we now need some rapid upward movement in gold prices to push the stocks higher and save our options from a giving us a financial bath. It is worth noting that these contract are extremely volatile and can move 50%, even double or halve in a single day. If gold prices begin to tick up again, these options will be quick to move back into the profit zone.

It is said that fortune favours the brave so we are now searching through the wreckage looking for quality stocks that have suffered too much in this sell off with the view to acquiring them.

Trading decisions belong entirely to you as your circumstances are different from ours and we trade to suit our investment criteria and cash position.

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Reader Comments (8)

I've heard some good things about this blog. Remember to balance the pics with the text tho. cheers!

September 14, 2008 | Unregistered Commenter101DoFollowBlogs

A couple of things to ask you:

1. Sometime back did you recommend the purchase of Hecla? I purchased the stock and now waiting for a recovery.

2. You have been doing a number of short term trades which result in heavy taxes on profit. This leaves me perplexed when I miss out on short term sales in place of riding out the ups and downs. Would I be correct in saying that you are happy with any profit after taxes, rather than not trading a stock during price swings?


September 14, 2008 | Unregistered CommenterJohn Ell

I have held off calls or puts for mining company options so far. I didn't feel comfortable getting in as of late. Do you have an update for those of us whom have not acted to go into options as of yet? Time to jump in with both feet?
Best Regards,
D. Leonard

September 15, 2008 | Unregistered CommenterD. Leonard

I put 1/2 of the free cash in my Metals portfolio to work Friday at noon with AEM and GOLD options. My driver was the US dollar. Still looking to place the remaining cash. I will be reading over your posted portfolio comments. I look to put the balance of the cash to work in the next day or 2.

You get top marks for your analysis of mining stocks. Thanks so much for the newsletter.

What are your thoughts on HL, PAAS & SLW?

September 15, 2008 | Unregistered CommenterBC

Thank you for your transparency in these tough days for $gold; I appreciate your balanced approach. Surely gold will soon be seen as the safe-haven that it is, but the election may have to pass for manipulators to cease propping the $USD.

September 15, 2008 | Unregistered CommenterJC

From nausea to euphoria, the suspense is terrible; I hope it will last!

September 17, 2008 | Unregistered CommenterDavid

Yes we did, we are also waiting for a recovery. The stock is up near 10% today so lets hope this is a sign of things to come!
Could you please give us more details on your second point? We are obliged to remind you that we do not comment on individual tax situations.

Yes we have been giving buy signals on both stocks and options over the last month or so. Take your pick from our portfolio of gold stocks above, particularly AUY AEM KGC and GOLD.

Looks like that was a good move and you should be benefiting from todays $80 rise in gold!
We would buy both PAAS and SLW with both hands, and we have done. We have a position in HL, including some call options, but we are not increasing our posistion on that one as of yet.

From the $80 jump we think some people must have have realised that gold is indeed the ideal safe haven in today’s financial climate!

We certainly do too!

September 18, 2008 | Unregistered CommenterGold Prices

Regarding my second point dealing with manipulation of $USD, refer to an article by Gary Dorsch found on Kitco commentaries dated Sept 10,08. The article is called "Maverick McCain and the resurrection of the $USD".

September 18, 2008 | Unregistered CommenterJC

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