2015 started brightly, but not as bright as 2014 started and has been accompanied by many saying that the bottom was formed in November 2014 for gold prices. This is the question that we all face today, is that bottom for gold prices the real deal or not and is it upward and onward from here. This support level was tested in December 2014 and once again in March 2015 and managed to hold.
The producers have followed in a similar pattern in that they have also tested their lows of 150 and this support level has managed to hold. The mining community has done a lot to reduce their production costs considerably, as they were and some still are having difficulty in generating a profit. Stocks are most definitely cheaper than they were, for instance, Barrick Gold Corporation (ABX) traded as high $52.50 in 2011 and today it can be acquired for $12.78, registering a saving of 75%.
Many forecasters are of the opinion that it is safe to re-enter this market and acquire precious metals mining stocks as they are cheaper than they have been for some time. This reasoning has been suggested as a reason to buy stocks a number of times over the last 3 years, with disastrous results.
A number of theories have been put forward such as gold cannot fall below a certain price because the miners cant mine it for anything less than that. If that were so then the word bankruptcy would not be necessary. Be prepared for a number of bankruptcies to make the news if and when gold prices take a dive.
The US dollar which has outperformed gold over the last 2 years is now undergoing a correction. However, when we compare the two on StockCharts.com we can see that the dollar is up around 5% YTD and gold is flat, gaining nothing.
We are overweight in cash at the moment with 70% of our funds residing in dollars, 15% are in long positions and the remaining 15% is in short positions. Not earth shattering but we are really happy to have the cash in readiness for the u-turn in this sector of the market. The time will come when we hit the acquisition trail with some gusto but that time isn't now; patience is the order of the day.
'Time is of the essence' as they say so we are using this period to comb through our list of potential acquisitions and filter out what we consider to be the cream of the crop. Our watch list is rather large but there are no more than 20 companies that we would like to own and we hope to refine this list even further and get it down to around 12 or so stocks.
If you would like to join us in this venture then we would be delighted to have you on board for what is going to be an exciting although at times 'white knuckle' ride
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