Good Times and Bad Times in Gold

I got blasted, no - torn apart - at Seeking Alpha, by perma-bull-gold-bugs (aka the most depressing people in the world), when I wrote that I was getting out of leveraged gold, back as gold was moving up towards the $950 zone. I’ve never had an “I told you so” feel better, I mean people were personally attacking me. I’ll admit here, the call was a little lucky, but to your face I’ll say it was 100% skill

This was after this note to readers, to buy Yamana warrants when they hit $2.25. 13 days later, they hit $4.60. (I didn’t know the call I made was going to be that good.) I took some amazing profits, and closed everything in the $4 - $4.60 range.

Unfortunately, I didn’t foresee how violent the pull-back in Yamana (AUY) was going to be, and didn’t really call that. As it has now pulled back significantly from its all-time highs, it’s obviously due to the pull-back in gold, plus Yamana has had some problems themselves.

I have never been long the stock, but some clients (who have less risk tolerance than I) have been long and have been holding along the ride up, and now the ride down to a break-even point. I did get a 21% gain for one client, honestly only by accident, because we wrote nearly at the money calls, and the stock got called away.

But, what am I getting at? What I’m trying to say is, listen to me and feel free to disagree with this next statement: Yamana is going to be okay - because none of the problems in the US that made gold go up in the first place have changed. All of those predictions for the +$1000 mark by the end of ‘08 still have merit, but nobody remembers because it, because everybody got tired of listening to everyone else screaming it 4 months ago. Thus, it’s time to buy again. The warrants are getting closer and closer to expiry, so are higher and higher risk, but I think are on the order of “cheap” again, and so is the stock.

I’ve had bad calls, and I’ve had good ones. Get over it.

Comments

[globalmacro:]

Calling any move in gold correctly is always pure luck. There aren't too many fundamental factors you can look at other than sentiment (which is a very subjective task). It's not like a stock where you can build a model to try and determine earnings a few years out. That's why I hate trading gold. The only way to try and guess which way its going to go next is to look at what the price is doing now. A pointless, fruitless exercise in my opinion.

2008 May 03 01:26 AM

[firboy4:]

I loved the tone of your article! I'll read more from you, if only for entertainment. But I do agree with you on whatever you said. I guess I do, because I just bought a bunch of Yamana on Friday afternoon. (More than I EVER have). So, I hope you are right. I hope you are "lucky" as the first commenter apparently believes is the only way anyone ever makes money on gold. I strongly disagree though. It seems to me that making money in gold is a fairly easy thing to do with fairly simple rules to follow. We'll see if I have even a peabrain in my head next week or so.
Regardless I really like the way you write. I like the attitude. Dave

2008 May 03 09:33 AM

[User 30121:]

Jeffrey...nice article. For those of you unsure or disliking dabbling in gold, I pass this on: A multi-billionaire gave this advice many years ago regarding gold, "Don't wait to buy gold. Buy gold and wait". Nuff said. Happy hoarding!

2008 May 03 02:57 PM

[buyforeclos...:]

Gold may be in for a downslide if the dollar keeps getting stronger. I bought Yamana at 14.08 and thought it was a steal...sold it at 13.68 because I had a bad feeling. I can pick it up now in the 12.80 range and may do so but now I am watching the news about dollar/inflation/...wh... seems to dictate what gold does + -

2008 May 03 03:47 PM

[Otto Rock:]

You like gold, understand gold trading but don't like the goldbugs.
You're my kinda person, Jeffrey!

2008 May 03 03:56 PM

[Golf Finger:]

A lot of the heavy players seem to be getting back into gold stock. Yamana had many large players buy their stock over the last 2 weeks.
This is usually a good sign.

2008 May 03 04:35 PM

[GMiki1:]

How you handle the gold market depends on whether you're a trader or not. I read everything I can find on gold (and silver) and can tell you it's either going up next week or down. I do know that it will be up in the long run, so I don't trade. I definitely have made money and expect to make more.

2008 May 03 10:09 PM

[GMiki1:]

Moreover, really look at the drill results. Go for bonanza levels such as offered by Detour Lake (I hold Pelangio, which owns about half of Detour), Houston Lake Mining, King's Bay, and Bravo. Look at the drill results. Goldcorp has some fantastic mines, too. Northern Dynasty is way undervalued for what it has and the money behind it. And because I love the area of Indonesia, I hold Kalimantan Gold which has great potential--fairly nice drill results and cheap price, though it isn't going to produce for a while yet. Definitely look for rich veins and undervaluation.

2008 May 03 10:17 PM

[retepog:]

I think it's good time to buy gold shares now. downside probably is less since it fell off from the high of more than $1000 a share. Anybody read Aden's forecast from the sisters? Gold is on the D decline now,which is the severe one. Wait for the C rise probably start in October, but hard to time the market so start accumulating the cheaper ones like AUY, GG but i like AEM and GLD. SLV & PAAS will follow usually.

2008 May 04 02:33 AM

[mkreisel:]

I like gold now and I hate goldbugs too. They are in my mind no different from religious fanatics, the only difference is that they worship gold instead god.

2008 May 04 03:43 PM

[Serena:]

All Yamana shareholders must see the super bullish May 2 YAMANA French Curve Chart on Jim Sinclair's MineSet website and note that Mr. Sinclair asserts that "the downside in gold will be in by the end of the first week of May." ALL GOLD investors should note that in his Special Gold Trading Update (written April 29 and posted on April 30 on the Kitco site) Alister Gilbert (Gann adherent) writes "Gold is getting ready to explode higher in Wave 3 of 5. The Fibonacci TIME chart shows we have just hit the 61.8% level in time of Wave A. The 61.8% in price target of Wave A is $853. This means we are either bottoming today or will run to this Friday 2nd May. Friday is the 100% in TIME and fits well with the due Delta date for ITD#1 and MTD#2 turning points. Friday is also a Fibonacci 34 Trading days from the March 17th high. Gold is ready in TIME for the big move having completed 61.8% in TIME of Wave A and with 100% due on 2nd May."

2008 May 05 08:16 AM