Gold prices are currently standing at $1153.90/oz having been through a period of consolidation despite the US Dollar making good ground. We have warned in the past that this is a volatile sector and the first few months of this year have been turbulent, however the trend is still up so we are sticking with it.
As the above chart shows gold prices are making steady progress with both the 50dma and 200dma rising in parallel to add support, with the technical indicators more or less in the neutral zone.
The cast of performers who have featured in our articles over the past few months has included Ben Bernanke, Grandich, Soros, Nadler, Casey, Rule, Embry, Rogers, Yellen, all adding to the rich tapestry of the precious metals landscape. We have also looked at a few companies that we don't have an investment in but are taking an interest in, such as Lihir Gold, Centerra, Oceanagold Corporation, Iamgold Gold Corporation, etc. And, in response to requests from our readership we have started a premium options trading service which has been well received with new investors signing up everyday. The cost for this service is $99.00, however, the last 8 trades have all generated a good profit giving our subscribers reason to smile. The attrition rate, the number of investors who terminate their subscription, is less than 2% which tells us that they are happy to stay with us. Many thanks to those of you who have joined us on this little adventure we really do appreciate your support.
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:
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 $61.16. 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. Due to mine commissioning/start up problems the stock was aggressively sold off and closed recently at $57.02, having suffered through dramatic oscillations, however, the old buzzard has started on the road to recovery and last traded at $61.16.
On the 25th January we bought some stock at $53.24 with the intention of making a short term trade, this move is currently up 15% but we had hoped for better. We may have to settle for a small profit shortly, but we are under no pressure to sell and we are expecting gold prices to move to higher ground.
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 $18.13 yesterday, we had expected a better performance.
Silverado Gold Mines (SLGLF) We have a token amount of this 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 $10.38 yesterday, so we are still looking for a significant increase in performance by Yamana.
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 attempted take overs by others. HRG closed at $0.81 yesterday, so we are still making progress, albeit slowly.
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$5.97 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., 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 (independent of the our premium options trading service) and they are as follows:
The first trade was with Randgold:
On the 9th February we purchased the June $75.00 Call Options for $5.50 per contract. On the 4th March these contracts were trading at $8.60 per contract for a paper profit of 55% so we placed a stop at $6.50 to protect our position. On the 10th March 2010 the stop was triggered so we were evicted with a small profit.
The second trade was with Agnico-Eagle:
On the 25th January 2010 we purchased the May 2010, $60.00 Call Options and again we were stopped out on the 11th February 2010 for a small profit. So we re-purchased them for $4.64 per contract. We are still holding these contracts and AEM is trading above $60.00 ($61.16 to be precise) however the time element is deteriorating fast so we will need to dispose of them during AEMs next rally.
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 are currently 85% invested and have about15% in cash.
As a suggestion for those who do want leverage to the precious metals bull, the gold and silver funds together with the careful application of options trades could be a possible solution for you. This way we are exposed to any movement in gold prices which in turn is magnified by the effect of the option. Do remember that loses are also magnified in the same way so its not a strategy for the faint hearted. On the other hand the quality stocks are not performing as anticipated and a non-producing junior stock is a shot in the dark, however, its your money and its your call.
Got a comment then please add it to this article, all opinions are welcome and appreciated.
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