Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
This Commodity Has Perked Up its Investors' Portfolios - 27th Sept 16
Charting the Continuing Gold Market Correction - 27th Sept 16
Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - 27th Sept 16
Financial Markets and FX Setups 27th Sept - 27th Sept 16
Crude Oil, Forex and Stock Market Trend Forecasts - 27th Sept 16
Why There is Trump - 27th Sept 16
Save Up to 70% in Shopping Expenses for Daily Items - 27th Sept 16
Gold’s Moving Averages and Long-Term Outlook - 26th Sept 16
September Stock Market - The Not So Silent Demise of Deutsche Bank - 26th Sept 16
SPX sell signal confirmed - 26th Sept 16
SPX is testing the next level of support - 26th Sept 16
Outrageously Entertaining US Presidential Campaign Final Stages - What Happens Next? - 26th Sept 16
BoJ, FOMC and Where To Now? - 26th Sept 16
Stock Market New All Time Highs Next - 26th Sept 16
Why Trump Will Win US General Election 2016 Prediction Forecast - 26th Sept 16
Martial Law Rolls Out Across the US As Jubilee Nears - 26th Sept 16
Stock Market More Correction Likely - 25th Sept 16
US Presidential Election Forecast 2016 - Trump Riding BrExit Wave into the White House - 25th Sept 16
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16
Gold vs. Stocks and Commodities, Pre-FOMC - 20th Sept 16
BrExit UK Inflation CPI, RPI Forecast 2016, 2017 - 20th Sept 16
European banks may be more important than the Fed this week - 20th Sept 16
Gold, Silver, Stocks and Bonds Grand Ascension or Great Collapse? - 20th Sept 16
Mass Psychology in Action; Instead of Selling Gilead it is Time to Take a Closer Look - 20th Sept 16
Hillary - Finally Well Deserved Recognition for Deplorables - 20th Sept 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

The Acquisition of Gold Mining Stocks is a Question of Timing

Commodities / Gold & Silver Stocks May 02, 2012 - 07:36 AM GMT

By: Bob_Kirtley

Commodities

Best Financial Markets Analysis ArticleIn an attempt to maximize the profits on our investments we consider that the timing of any purchase of precious metals mining stocks to be of paramount importance. To that end we have not increased our exposure to this sector since our last purchase, which was in February 2011 and on reflection we are pleased with our decision to keep our powder dry until the opportunity presents itself whereby we bag a jolly good bargain.




One of the hardest things to do as an investor is to sit on your hands when it appears that everyone around you is actively engaged on the acquisition trail as they add the latest 'hot stock' to their portfolio. The mantra of buy the juniors, buy the mid caps, buy the large caps, has been trumpeted loud and clear over the last year or so, with the result that many investors have indeed caught the following knife. There are exceptions to the rule and those who are exceptional stock pickers may have secured profitable trades, however, as the HUI, the Gold Bugs Index clearly indicates, its been a poorly performing market sector for the last eighteen months or so.

There are however, many positive observations that can be identified in this sector, such the increases in earnings, the much lower P/E ratios, the cash piles that are starting to mount in the miners coffers, etc. The lower stock prices are too much to resist for some investors as what is on offer represents a bargain when compared to the situation in years gone by. But that comparison does not mean that it is bargain today, it only means that we have a cheaper entry point. In discussions with our various colleagues across the globe, we are given sound and valid reasons for buying gold, which we wholeheartedly agree with. However, those reasons do not automatically apply to gold stocks. They are two very different investment vehicles, the latter being subject to a multitude of downside risks, for which there needs to be a premium in terms of returns, in order to make them attractive to us as investors. Of late the stocks have failed to keep up let alone offer any sort of leverage to gold prices and so, rightly and wrongly we remained patient and were not tempted to buy.

Now, the time to buy could well be coming closer but we would ask you to bear in mind that the advent of the ETF's has rendered trading in gold easy and simple to do. At the click of a button you can be in and out of trade in the same day if you so require. An ETF has its own inherent risks, however it does remove the risk of political uncertainty, poorly managed companies, construction delays, rising labour costs, rising energy costs, etc, that are prevalent in the mining industry.

Another consideration is the possibility of a banking crises, similar to that of 2008. We are all aware of the massive amount of money creation that was required to provide liquidity for what were effectively bankrupt enterprises, towns, states and countries. Well not a lot has changed on that front other than we gained some time in order to try and re-group and we all know that isn’t going too well at the moment. The point being is that should we get a major default, a too big to bail default, then the financial markets will experience the 'mother of all' sell offs as everyone and his dog scramble to liquidate their positions. If such a catastrophe comes our way do you think that gold mining stocks will be spared, not a snow ball in hells chance of that happening. So, with our arms tightly folded we continue to refuse to be drawn into the 'buy now while stocks last' environment and we will wait as patiently as we can for a major correction to deliver rock bottom buying prices for us to take advantage of.

As many of our peers are recommending an accumulate now strategy we would ask that you read as widely as possible in order to gain as much knowledge as you can about this tiny and rather volatile sector. As you can appreciate it is difficult for us to take this contrarious stand at the moment, but it is our hard earned cash that is on the line and so we must trade according to our own research and beliefs.

For the record we do continue to hold onto our core position of mining stocks, our physical gold and our previous premise that the use of options offers leverage were mining does not, is paying off handsomely.

As a retail investor you are unique, its your money and your call to make and so we wish you every success in the implementation of your investment strategy.

Finally a quick look at the chart of the HUI which is not a pretty sight, as we can see the 50dma has crossed over the 200dma in a downward direction, sometimes known as the cross of death and on this occasion has proved to be bad news for the gold mining sector. The overall trading range had stood between the '500' level and the '600' level, but unfortunately this appears to have failed as the HUI closed below 450 yesterday. The formation of a double top has also been a negative for the HUI as it has trended lower with short rallies failing to gain any traction.

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 200

DISCLAIMER : Gold Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.

Bob Kirtley Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife