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« How Do the Chinese View the Gold Market? | Main | What catalyst will trigger Gold’s parabolic rise »
Tuesday
Nov272012

How to Play Your Gold Stocks Now

After a year or more of depressed prices, gold and silver stocks reversed with a vengeance. GDX (the ETF proxy for the Gold Miners Index) was up in just two months (August and September). Those who followed our lead and bought or averaged down this summer have profited handsomely. It's been a fun ride, and I'm convinced we'll see many more surges like this before it's all over.

What was perhaps more important about the surge in gold stocks, though, was the leverage they demonstrated, which is one of the primary reasons we invest in them. Here's a comparison of GDX to GLD from August 1 to November 1.

This chart shows the advantage of building your position on dips. It lowers your cost basis and takes leverage to a higher gear.

So, what now?

First, stocks ran far and fast, no doubt, and nothing goes up in a straight line, even in a bull market. That's why the October lull wasn't concerning to us.

Second, we also should consider seasonality. Here's the updated monthly performance of gold stocks since the bull market started in 2001, along with their year-to-date performance.

You'll see that October is typically the weakest month of the year for gold stocks. It wasn't surprising that the dip wasn't big this year, since stocks had been weak most of the year.

It's the big picture, of course, that we're most interested in. With the Fed, ECB, and BOJ pulling stimulus rabbits out of the printing hat, and the UK, Switzerland, and China all adding to their balance sheets, gold is headed a lot higher and will subsequently pull the stocks with it.

Further, the seasonal pattern in stocks does not apply to gold.

On balance, October is a strong month for our favorite metal, though that wasn't the case this year. This is a good reminder that shopping season could strike at any time.

For now…

  1. Maintain full exposure. Enjoy the ride, but don't be surprised to see a pullback, or at least some consolidation. As the chart above shows, this is a strong time of year for gold, so we want to be fully invested. In the big picture, we've got a long way to go.
  2. Have your shopping list ready for whenever the next correction strikes. There's no crystal ball perched on our desk, but we know further pullbacks will arrive at some point, so be prepared to pounce.
  3. Consider taking a free ride if you're sitting on a large gain. Calculate the number of shares to sell to take your initial investment off the table. Then your remaining shares are a "free ride," meaning risk-free. If you go this route, do not sell your entire position; you could lose out on further gains.

Navigating the bumpy waters of precious-metals investing is especially challenging right now. With the right guidance, your investments can be positioned to help keep economic trends from robbing your savings and investments. Learn more here.

Regarding www.skoptionstrading.com. We are pleased to inform you that we have now achieved more than a 500% return since inception.

If you wish to join a winning team then please become a subscriber via this link:

Our model portfolio is up 505.98% since inception

Our trading success rate is 91.30%

95 profitable trades out of 104.

An annualized return of 78.31%

An average return of 35.55% per trade

Our annual performance figures are as follows:

2009 We made a profit of 23.89%

2010 We made a profit of 158.66%

2011 We made a profit of 40.95%

In 2011 we outperformed:

S&P by 42%

HUI by 53%

Gold by 31%

Silver by 41%

The 2011 Annual Report by be accessed via this link.

Also many thanks to those of you who have already joined us and for the very kind words that you sent us regarding the service so far, we hope that we can continue to put a smile on your faces.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. Winners of the GoldDrivers Stock Picking Competition 2007  

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