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« Randgold Resources Limited: Back to the Buy Zone! | Main | When Gold Sells Off, Think of the Big Picture »

Gold stocks: Buy, Hold or Sell?

Gold vs the HUI 07sep08

The gold bugs index (HUI) closed at 301.15 with gold just managing to stay above the $800/oz level on Friday. What an aberration! The HUI is down to a level last seen in 2006 when gold was trading just above the $500/oz level.

Since the start of 2006 gold has gained around 60% in value with the stocks lagging behind slightly until this year when they give back about 80% of that gain to register a mere 10% gain for the same period. Its true that the dollar has rallied and the oil price has tumbled which no doubt has thrown a wet blanket over the precious metals sector, but the sell off in the mining sector has been devastating.

As regular readers will know we have been buyers through what we thought was a lacklustre summer season for gold mining stocks but even our most recent purchases have been hit hard over the last month or so. Producers such Yamana, which is down below $9.00 could have been purchased for the same price in early 2006. How a gold producer can trade for the same price when gold is $500/oz or $800/oz is just bizarre. We are either looking at the buying opportunity of a lifetime or there is something dramatically wrong here and we just have not seen it.

This is a gut wrenching pull back that has caused many investors to bail out some with heavy loses. Is it over now? Well we are struggling to see just what could cause the HUI to fall further but we have been wrong before. Its at times like these that we tend to get thrown off our plan and spend a period of time differing and then look back and regret selling our stocks or not buying more when the window of opportunity stared us smack in the face!

As ridiculous as this may this sound we have decided to hold on to what we have and tough it out. We have a small amount of cash remaining in our opportunity fund, enough for say one more purchase then we will be 100% fully invested.

So, for us we will search through this carnage with the view to picking up a quality gold producer at a rock bottom price. After that all we can do is sweat!

Does the same apply to silver stocks? Not quite! If we take a quick look at the silver sector we can see that Hecla mining is trading at the $6.00 level and it too could have been purchased for that very same price in early 2006. However silver has almost halved since it hit a recent high of $21/oz, which makes Hecla’s and other silver producing stock prices a little easier to understand.

These are very difficult and challenging times and its essential that you stay up to date with what is going on in the market. For our latest commentary and trading signals on gold, click here to subscribe to The FREE Gold Prices Newsletter and click here for The FREE Silver Prices Newsletter.

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Reader Comments (7)

What different between now and 2006 that would account for lower gold stocks? Production costs for all and political risk for some.

I too have some holdings and some cash, and look forward to these newsletters as I consider where to put my cash to work.

Your comments have been a big help. Sometime I follow your trades exactly, sometimes I follow your approach with a different stock or an option or at a different time. In all cases I take your comments for what they are, your well researched view of the gold & silver markets. I like that you explain the "why" of your strategy. Keep up the great work and thanks from one of your long time readers.

September 8, 2008 | Unregistered CommenterBC

I too am holding cash looking for a good home, your newsletter are a great source of info, thank you. the problem is I just don't feel confident in pulling the trigger anymore.

As for the drop in value of the miners and the metals, to me it makes no sence at all, the whole market looks to me to be completely manipulated, metals, currencies, oil and stocks - the whole shooting gallery is controlled by the big money with worthless paper contracts.

They want all the little fish out of the market so thay can have it for themselves, or rather, they want to relieve us all of our money for them to keep, making the poor poorer and the rich richer, sounds about right to me.

September 8, 2008 | Unregistered CommenterG.M.

Do you see that sort of head-and-shoulders figure in the chart you just published?. Look at the right-side shoulder. It´s almost complete all the way down. I think this hectic figure is (actually represents)the responsible of this carnage. Don´t forget that. When I saw the coming of that configuration I made these assumptions: AUY @ 8,4; KGC @ 12,3; EGO @ 6.00; BVN @ 18,20. Some stocks have hit these prices already today, so I guess they hit the bottom. I didn´t buy so low because, unfortunately, I had run out of money. Some of you might think why I didn´t share this before. Well, the reason is because it might have not happend at all. So the learned lesson for all is, whenever you look at the formation of this hectic figure, be prepared for the worst. I wasn´t. It´s my very first time and I´m glad to discover it, and make you warn. However, quoting some of you: If technical analysis were perfect, we all were fat. Aren´t we?
So. What´s next?. I don´t know, but I guess a consolidation might come by, so don´t panic. Someone more skillfull might have a different clue.
Good luck to everybody,

September 8, 2008 | Unregistered CommenterToni

The persistent optimists tell us to hang in there because the PM market not only will turn around but will soar. I guess that most of us are in the same leaky boat with little or no available funds to take advantage of some of these great buys.

Imagine sometime in the future when we all look back at today's prices.

John Ell

September 8, 2008 | Unregistered CommenterJohn Ell

Gold will drop to plus or minus $725. Looking at the chart it could retest $600. I stated this before when this newsletter was to optimistic on gold prices. I state it again.


September 8, 2008 | Unregistered CommenterGrowthValue

Gold up 80$...FRG AND HRG are down. Is there any point to keep holding these companies. If they can't rally on a day like today. What's the point. Is it time just to take the Loss?

September 17, 2008 | Unregistered CommenterGary


Good point, we saw this are are very disapointed. We are going to re-revaluate those two companies shortly.

September 18, 2008 | Unregistered CommenterGold Prices

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