Just several days ago I said that if gold (GLD) goes to $1,200, it will be a great opportunity to speculate on gold and silver (SLV) mining producers. However, what happens if gold does not go to $1,200, should investors miss out on the opportunity?
Gold climbed more $60 since my last article and is up about 3% today. The market got the green light to speculate on gold once again, now that congress gave the green light for debt ceiling to be lifted and the Fed to start the printing press.
If we look at gold's chart on a daily time frame (chart below), we see that gold has some resistance at the $1,420 level. So this is how I think this should be played out.
Go long gold stocks for now until the $1,420 level in gold. As usual, I will use the five biggest stocks in the space for my speculation play, Silver Wheaton (SLW) Barrick (ABX), Yamana (AUY), Goldcorp (GG) and Newmont (NEM). However, If you are a little more brave, I would also take a look at the Direxion Gold Miners leveraged ETF (NUGT) that is three times levered. So whatever gold stocks do, it gives you three times the move.
Taking into consideration the kind of moves we have seen in gold stocks over the past several months, a $100 move in gold should give good returns in the stocks mentioned above. And if gold reaches that point, look for any technical weakness in gold or in gold stocks and you might consider selling them at that point.
My guess is that gold stocks will be outperforming gold from now on and they might not fall all that much anyway, even if we see gold moving to much lower levels. So on the one hand I think the returns should be significant, and on the other, I don't see gold stocks falling all that much, even if gold stagnates and does not reach $1,420.
For the time being the Fed has been given the green light to start the printing press once again. That should push gold higher, but gold stocks should outperform gold by a lot.