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Still all in on Gold and the Gold sector. My Gold is
not for sale or trading, it is my cash and cash is king in a secular bear
market. My Gold stocks are speculative vehicles with significant inherent
risk that I largely trade in and out of, for better or for worse. I remain
rabidly bullish on Gold and Gold stocks at current levels.
My horizon on Gold stock trades tends to be a few weeks to several months
(i.e. sort of a "swing" trader if you will) - I plan on months when
the trade begins but will take profits on any Gold stock that gets
significantly overbought even if it is only a week after I buy it. Volatility
can be a friend or enemy in the Gold stock sector. I am not married to any
one Gold stock and I am not qualified to accurately analyze the fundamentals
of any one firm as I lack a mining background. The Gold stock sector is a
fundamental and cyclical play for me based on the macroeconomic picture, but
I lack the needed skills to be a guru stock picker in the sector. It won't be
me that discovers the next "can't lose," "ten bagger"
Gold stock unless it is by dumb luck.
However, I am also aware that even turkeys are going to fly in the Gold
sector, much as in the internet mania of the 1990s. And make no mistake about
it, we will have a Gold stock mania before this decade long secular Gold bull
market is over. The secular Gold bull has a long ways to go and the wall of
worry is intact. The monetary storms remain with us and aren't going away any
time soon, whether you are an inflationist, deflationist, both, or don't care.
But back to get rich or die tryin' - why am I so bullish right now on Gold
stocks and how will I know it is time to take some money off the table? Well,
first, let me say that I often book some profits along the way in big bull
runs by either selling individual Gold stocks that have gotten ahead of
themselves based on daily or weekly momentum indicators (and then moving
profits to oversold Gold stocks) or by selling covered calls against the
stocks or long-dated options I hold on Gold stocks and ETFs.
Bigger picture wise, however, there is a point in the next 5 months or so
when I will likely not want to be long in the Gold stock sector at all. If
you're a buy and hold investor, the following trading nonsense does not apply
to you, but may provide some encouragement regarding the immediate near-term
future. My need to trade may be my undoing, but c'est la vie in the
speculative world and this is why I do not speculate with all of my savings.
Gold stocks typically peak in the March to May time frame when a speculative
intermediate bull run cycle begins in the fall. Seasonally, we are in the
sweet spot for Gold stocks after a typical correction that I believe
completed in December. Seasonals don't always work, but when they line up in
a particular year, they generally provide a supportive wind for Gold stocks.
Second, major Gold stock indices generally peak after a
significantly overbought reading develops on the basic RSI momentum indicator
using a WEEKLY
chart (i.e. at the end of a 6-12 month bull "run" that Gold stocks
tend to have). Here's a weekly 10 year log scale candlestick chart of the
$HUI Gold Bugs Mining Index to show this concept over the entire course of
the current secular Gold stock bull market, which is far from over:
Third, the move in Gold stocks is supported by fundamentals. Yes,
fundamentals, those things that don't matter any more in the general stock
and bond markets. If corporate junk bonds (a la the JNK and HYG ETFs) can
best their 2007 nominal highs at a time of record corporate default rates,
then don't talk to me about Gold miners not making any money! The
"real" price of Gold, as taught to me by the writings of Bob Hoye,
remains at multi-decade highs (a crude measure of Gold mining profitability
obtained by dividing the nominal price of Gold by the nominal price of a
basket of commodities) while Gold stock indices have yet to see new all-time
nominal price highs. This is set to change as Gold stocks get set to break
out to new highs.
Along the same fundamental lines, we are in an economic environment where the
Dow Jones Industrial Average is declining relative to Gold. Such periods of a
falling Dow to Gold ratio correspond with secular Gold stock bull markets and
secular general stock bear markets. The swinging pendulum of history has not
yet swung far enough away from Wall Street to complete the secular bear
market in general equities.
Finally, history proves beyond a shadow of a doubt that Gold stocks can rise
even if the bear market resumes, a la late 2000-2003 and the 2007-March 2008
bull run. Gold stocks have already had their crash and the fall of 2008 was
the best buying opportunity for Gold stocks since the late 2000 secular lows.
The stock market can go down, but Gold stocks are going to keep going up. Of
course, speculating is not risk free and if a true second stock market
"crash" were to occur, Gold stocks would not be immune from the
down draft. If you can't stand the heat, put your money in safe physical Gold
and sleep well at night.
This bullish message on Gold and Gold stocks is not gloom and doom, this is
not a message of the apocalypse (at least not in my mind), you don't have to
live in a log cabin or eat your barbarous relic to survive and the economy
will eventually recover, like it always does. However, it is important to
simply recognize where the true secular bull market lies and ride it -
sometimes bull markets go up because they are going up. As an example, Gold
and Gold stock bulls need to stop worrying so much about the U.S. Dollar
Index in my opinion.
I think the "sweet spot" for the Gold stock indices lies dead ahead
and will correspond with new nominal highs for Gold and silver. I see the GDX
ETF making it to 75 or more, the GDXJ ETF at 45 or higher and the $HUI headed
for 750 or higher. Gold should reach at least $1350/oz and $1750 wouldn't
surprise me before the spring is over. Rational exuberance remains my theme
in the Gold patch, with a mind to book some profits along the way when things
get overheated on the shorter term daily charts. Paperbugs like Roubini and
the staff over at bloomberg.com certainly won't agree with my current thesis,
but I'm still here and still bullish on all things Gold.
Adam Brochert
GoldVersusPaper
Also by Adam Brochert
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