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Let me start by re-iterating that I am a secular permabull on physical precious metals, particularly Gold.
When you're dealing with the end of the road for the current international
monetary system (a la the 1930s and the 1970s), there's only one asset that
is a complete no-brainer to own. As a hint, that asset is shiny and owned by
every central bank in the world "just in case."
However, I also like to trade. When trading, I would sell or buy anything if
I though there was a profit to be had. For example,
my subscribers
and I have been short senior Gold stocks as a "scalp"
trade over the past week. Does this make me a traitor? I don't think in those
terms, as I am a more practical Gold bug/bull. The more paper I make, the
more metal I can buy.
However, once the current short-term correction finishes, it is back to bull
mode. Gold, silver, and Gold and silver stocks - they're all going to go
higher. The only real conundrum is which of these items to buy as a bull
trade once the correction is complete. In another week or so, we'll hit
bottom and find out which of these items will outperform.
I like the prospects for the entire precious metals patch. From a trader's
perspective, I think silver has an obvious minimum target when using the SLV
ETF. Here's an 8 month daily chart of the SLV ETF thru today's close to show
you what I mean:
Once we correct a little (likely in a scary fashion over a few days for
silver and senior Gold stocks, as they both seem to enjoy volatility as much
as Bernanke likes creating money out of thin air), a decent 15-20% move
higher is likely. After that, we'll have to see. All precious metal bulls
know that we'll ultimately make new highs in silver above $50/oz., but the
exact timing is uncertain from a trader's perspective. This is why it is best
to simply buy physical metal and hold on for the volatile ride. However, some
of us like to speculate with a portion of our capital and this message is for
you fellow punters out there in the PM patch.
Now, the senior Gold stocks are the basket case of the PM sector. All this
crap about Gold stocks leveraging the price of Gold and having bullish
fundamentals doesn't mean anything if they won't perform here and now. And
I'll be honest, I'm very concerned about their
recent performance. That doesn't mean there isn't money to be made trading
the senior Gold stock indices like the GDX ETF, but I am not impressed with
the move off the late December bottom so far. Here's an $HUI:$GOLD ratio chart
to show you what I mean:
A permabull will tell you that any minute now, Gold
stocks are going to blast higher and if you don't buy right now (yesterday,
in fact), you're going to miss out on a quadrillion
dollars. Me, I don't think so. I think this warning signal should be taken
seriously. It means that the senior Gold stocks could be headed for something
like this over the next few months (2 year daily chart of GDX thru today's
close):
This is not a prediction, by the way, but if senior Gold stocks don't start
outperforming Gold soon, don't be surprised if something like this happens. I
trade Gold stocks, I don't own them. I prefer to own physical metal and then
speculate in stocks and paper metal (as well as anything else that looks like
it might be good for a winning trade). Investing and trading are very
different and require a different type of focus and attitude. With physical
Gold, I never worry about the price on a day-to-day or week-to-week basis
(unless I am looking to buy more). Why? Because I understand the secular bull
market in Gold and why it won't be over for some time. I never lose sleep or
worry if Gold drops 10 or 20% when priced in my local currency (i.e. US
Dollars). Wake me when the Dow to Gold ratio
gets to 2 (and we may well go below 1 this cycle).
The bottom line is that we're going higher in the PM sector. Exactly how we
get there, only Mr Market knows for sure. But I
believe there are profits to be made speculating in the paper markets. After calling the exact
day of the bottom in the PM patch for my
subscribers and I in late December, we sold our long
trading positions in senior Gold stocks 2 weeks ago in anticipation of the
current correction. We went short senior Gold stocks on February 2nd, catching
the high that day. In a week or so, we will be going long again in the PM
sector. If you'd care to join us in the dark jungle known as the paper
markets, a one month trial
subscription is only $15. But please, don't even think
about subscribing until you've secured a core investment in actual physical
metal held outside the banking system.
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