Gold is currently standing at $1130/oz having ran up to $1220/oz before a December rally by the US Dollar brought about a correction in gold prices. We have warned in the past that this is a volatile sector and the last few months have been turbulent, however the trend is still up despite this recent correction as the above chart indicates.
Our portfolio as been updated as follows:
Randgold Resources Limited (GOLD) On the 18th of June 2008 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 trade as low as $27.70, on the 28th May 2009 we sold our entire holding for an average price of $68.69 for a return of 82.44%. This is a quality gold producer so we waited patiently for a suitable entry point at cheaper price levels as per our post “ Randgold: As Good as it gets”when Randgold traded at $58.71 and we wrote the following:
On balance we think that this may be as good as it gets for Randgold and that a purchase here would prove to be a profitable one, however we are looking for an absolute bargain and have chosen to wait a little longer. This decision is not unanimous within our team so as always the final decision is yours and yours alone to make.
If you made a purchase at this point then well done, however we held out too long and missed the buying opportunity by being too tight, rats! Randgold is now at $81.41.
Agnico Eagle Mines (AEM) we originally paid $30.88 and it now stands at $31.15. 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 traded at $71.27 at the last update but due to mine commissioning/start up problems the stock was aggressively sold off and closed recently at $57.02, having suffered through dramatic oscillations.
Kinross Gold (KGC) we originally acquired Kinross at $10.08, Kinross then went through a bit of a pull back so we signaled 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 at $19.58 on Friday, we had expected a better performance.
Silverado Gold Mines (SLGLF) we bought at $0.08 and on 12th October our patience with its poor performance came to an end and we sold the lions share of our holdings for $0.018, it now stands at $0.0076. We have retained just a token amount of stock in the event that one day they do find the elusive mother load but we are not holding our breath. The stock dilution is such that there are now 1.5 billion shares in the company, just a tad too many in our opinion.
Yamana Gold Incorporated (AUY: NYSE) we paid $9.37 on 27 September 2006, and 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 $11.59 yesterday, so we are still looking for a significant increase in the stock price.
High River Gold Mines: (HRG: TSX) We bought this at $2.49 and we increased our position in the company on December 7th, 2007 and we are still holding on to it despite the wrangle of being acquired by others. HRG closed at $0.76 yesterday, up from $0.44 at the last portfolio update.
Fronteer Developments Group (FRG) Fronteer was originally bought as both a uranium and gold play as FRG owned 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$5.24 so we are now in positive territory with this portion of the purchase as our our original purchase was made on the 15 July 2006 at around the $4.70 level, so we are sitting on a small gain at the moment. Still expect this group to do a lot better and it is getting there slowly.
Fronteer Development Group Inc., has now acquired all of the remaining common shares of Aurora Energy Resources Inc. So this investment is well and truly a two pronged attack via both gold and uranium.
We attempted two options trades since September and they are as follows:
The first trade was with Randgold:
On the 1st December 2009 we wrote: We are pleased to report that today we closed our position in Randgold Resources Limited (GOLD) by selling our Call options at a profit of 100%.
On 8th October 2009 we purchased Call Options on Randgold Resources Limited (GOLD) they were the December 2009 series with a strike price of $80.00 (GUDLP) and we paid an average of $4.70 per contract for them. Today our sell order was triggered at $9.40 as gold prices traded as high as $1200/oz and Randgold gained over $3.00 per share.
The second trade was with Agnico-Eagle:
On the 1st November 2009 we wrote the following after this stock had just taken a hammering:
In conclusion we think that the punishment does not fit the crime and that the selling has been overdone. So we see it as a buying opportunity. This week we will seriously consider making another purchase of the Agnico’s stock and may also buy a few of the longer dated Call Options.
Our approach was to wait until the carnage had settled and the panic selling had subsided with Agnico showing signs of recovery. The trading session started with Agnico looking a little sluggish so we low bid the Call Options with no luck. Then gold popped up and Agnico followed at a rattlingly good pace, we tried to be patient and reviewed the charts and our research again and decided that this stock should be trading at $75.00 or so so we took the plunge, rightly or wrongly and acquired some Calls.
We bought the JAN 2010 series at a strike price of $60.00, symbol AEMAL for an average price of $5.10. The series finished the day with a bid price of $5.50 and an ask price of $5.70, so not too bad a start. If you pop back to the 13th October 2009 these very same contracts were trading at $16.22 so they have fallen dramatically of late. Lets hope that they can bounce back to those levels and quickly.
On 2nd December 2009 the options were up 81.46% when we wrote:
we had placed sell orders at double the purchase price so its fingers crossed that the old Buzzard can hit $10.20 in the next day or two, which would give us a return of 100% in one month.
Alas, this wasn't to be as gold corrected and took us south rather quickly.
So we decided to average down by purchasing more of the same Call Options at an average price of $0.90 just before the close on Friday thus reducing our average price to $1.28, writing at the time that it is a real gamble when trying to predict the price movement of a stock over such a very short time frame. Again these options started well enough to trade as high as $1.80 before falling back so we then reduced our exposure and commented as follows:
Sold around 50% today at about a $1.00 as the market faded. There were opportunities to sell earlier at higher prices but we decided to wait. Lets see what tomorrow brings.
Tomorrow arrived and gold falls taking our options down with it so today we sold the remainder of our contracts for around $0.20 per contract, registering an overall loss on this trade of approximately 50% of the cash put into it.
In conclusion we played this one really badly, the use of stops and had we taken some profits when they were presented to us would have given us a far better result. In future trades we will certainly try and take steps to lock in profits once they are there as they cant all work out as good as Randgold did. On the other side of the track our options trader is doing very well having closed 7 trades, with an average gain of 51.17% in an average of 37 days per trade, worth a look.
Trading decisions belong entirely to you as your circumstances are different from ours and we trade to suit our investment criteria and cash position.
Have a sparkling week and please feel free to share your comments with our readership.
Conventional wisdom suggests having 5% or so of your portfolio in precious metals with some commentators upping this figure to around the 15% mark. We however are far more cavalier in our approach to investment and only invest in the precious metals sector such is our enthusiasm for it. We currently have 85% invested and 15% in cash.
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