Tuesday, April 12, 2011

It's a "Duh" Kind of Day in Gold Stocks

11 & 12 April 2011

(The first part of this post was published on April 11, 2011:)

The trend continues....

We not only had a record closing high in gold last Friday (blue graph), but we opened Sunday night with further advances to new all-time highs (red graph).

Well, you know the pattern. Record highs in gold, 3% declines in gold mining shares.

I am not kidding.

There is only one scenario under which this makes any sense at all: Holders of gold mining stocks think that the gold rally is exhausting itself and heading back down - and soon!

Well, I've got news for you. That is NOT what is happening.

What is happening is that those who do not wish to make gains by holding undervalued gold mining shares are selling their shares at discount prices to those who do.

On a positive note for our side, the repeated - and now predictable - dumping of gold mining shares cleanses the market of sellers.

And... you know how supply and demand work.

When the sellers keep exhausting themselves, then on the next surge in demand, buyers have to pay premium prices, causing the massive one-day advances we've been seeing.

Gotta tell you. I'm buying in this market!


Hold on to your gold stocks. Gold is rising. What do you think the mining shares are going to do???

12 April 2011:

Another day, another sell-off. Today's was a 50% Fibonacci retracement (we're back at the midpoint of the previous advance).

This is standard stuff, but the talk out there is emotion-laden, to say the least.

Our friends at Goldman, who advised their clients to sign-on for $1480 gold just a couple of weeks ago, are now advising their clients to sell commodity positions. (Does this strike you as visionary, consistent, or maybe just pragmatic, short-sighted, perhaps?)

"According to Anthony Neglia of Tower Trading, the metals were getting bullied by Goldman Sachs. The investment firm issued a note Monday urging clients to take profits in commodities as the broad rally might not last as high oil prices eat into demand. All commodities were taking a hit Tuesday, oil prices were down almost $4, especially after mixed earnings from Alcoa."

The fear in silver is most striking. I quote: "Scott Redler, chief strategic officer for T3Live.com, who shorted the SLV (Silver ETF) Monday, is looking to add to his silver short Tuesday, and recommends that long term investors wait for the recent volatility to shake out before getting more heavily invested."

And, get this: "Silver had been holding up in early trading despite the fact that Bloomberg reported Monday a $1 million bet by an options trader that the iShares Silver Trust would fall 37% by July. Currently 22.6 million shares are sold short."

I guess my thinking is simplistic. Gold is not even close to being overbought. The fundamentals are intact. Traders skitter away EVERY TIME a new record high is set, despite the somewhat obvious trend in the gold price! New record highs in gold are good for gold investors and gold mining company investors, not bad. Silver is overbought, but it's not going to retreat if gold is climbing. Investing in things that are going up is usually safer than investing in things that are going the other way, or in no clear direction.

So my thoughts are as follows: continue to relax, have fun with your family, read a good book, watch a good movie, etc.

Let's leave the Byzantine strategizing to the game players on Wall Street. They have their own reward....

No comments:

Post a Comment