Will Gold Stocks Correct Next Week?

We feel that gold and gold stocks are in for a sizeable correction in the next week, or possibly in the next few weeks. We have seen a massive rally in gold stocks, with the HUI rising over 40% from its August lows.

However to us many gold stocks look overbought and we have sold a proportion of our holdings, although we have maintained a significant core position, in anticipation of a correction across the board in precious metals. After this correction, we intend to buy back the shares we sold at lower prices, enabling us to purchase a larger overall position. For example if we sold 1000 shares at $20 this gives us $20,000. If the shares fall to $15, we reinvest our $20,000 and this now buys us over 1333 shares, so giving an increase of 33% on our original position.

We still are very bullish on gold and silver in the longer term, and we see gold making $1000 and silver reaching $20 perhaps sooner than you think and in a few years, we see no reason why gold could not be at $3000 and silver at $100.

As far as the shorter term is concerned though, we are waiting for a short sharp correction in precious metals and their associated stocks. This correction could happen very quickly in the stocks as in the past we have seen the HUI drop 20-25% in periods as short as one week.

This shows that this correction could indeed be over this time next week, let alone beginning! The correction could be very short lived, but it is needed in order to maintain the technical health of gold and gold stocks.

The same applies to silver and silver stocks as they move usually in unison with gold, but with silver being the more volatile commodity. We are looking to make another trade on silver prices, possible via spread betting again as we did back on August 20th, which resulted in 100% profit in 30 days.

Trading in and out of the market is not for every investor and we always maintain a significant core position in precious metals. One can simply buy and hold in this market and, provided one is invested for the long term, this should prove to be profitable. Trading the ups and downs of a market does however offer significant profits for those who can successfully call the tops and bottoms.

Comments

[goatfarmer:]

Take a look at GOX. It doesn't give much room for a pullback.

2007 Oct 16 06:45 AM