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InvestBaboo
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Casual investor with a flair for investing.
  • Opening up a big position in Gold equities as a hedge against market uncertainty and serious inflation 1 comment
    May 16, 2009 2:36 PM | about stocks: ABX, GDX, LIHR, NEM, NG, AUY, GG, AEM, EGO

    In the past 3 weeks I have opened a big position in Gold stocks as a hedge against market uncertainty and serious inflation. A % of my portfolio holds speculative low priced equities that I call the Slumdog Millionaire portfolio that contains equities that were once valued high prior to the crash of 2008 and now mounting a comeback. My expectation is that even if a small % of these equities make a comeback to their previous heights my overall return on this portfolio would be spectacular. Another % of my portfolio is divided amongst techs, commodity stocks and industrials. My position in tech is purely as a result of my belief that just like past recessions this time tech will again lead us out of the recession. Companies that are laying off people have to find productivity improvements and increase their selling, marketing and customer service prowess and this they do through additional investments in technology. The logic with commodities and industrials is quite simple -- commodities have been hit so hard that sooner or later the supply side lack of new investments will start showing up which with even reduced demand will cause prices to head north. All this money that governments are fueling into the markets will cause commodity prices to escalate. Industrials are what will benefit from all the infrastructure projects that are being initiated as a result of the stimulus money. China is on a big run in this area and if you look at shipping companies results a lot more ships are now sailing to China with things they need for infrastructure projects. In addition to all this pontification I follow a rule that every single equity I invest in has to show buy signals and strong technical metrics on Daily and Weekly charts. All my equities do exactly that.

    So where does Gold come in? Well, I have always believed in Gold and as a matter of fact my stellar returns in 2008 were mostly due to an abnormally large % of my portfolio invested in Gold equities. Gold not only held up its price in 2008 it actually appreciated while the rest of the market tanked. Go look at any gold mining stock in later part of 2008 and they show upwards of 60%-plus returns! Since I follow charts for making investment decisions I exited Gold in the early part of 2009 when it started showing signs of sell signals and only in the past 3 weeks have I come back and started building a major position in Gold. So you ask where this newfound optimism in Gold is coming from? The answer is almost all Gold stocks showed a mass Buy signal almost all at the same time! Rarely have I seen such a movement of big money into a specific sector. And these buy signals have held up now over 3 weeks which makes this rally look quite solid. There are dozens of articles on SeekingAlpha that are bullish on Gold and there are some good arguments made there for the coming bull market in Gold. The biggest theory of course is that all this printing of money will devalue global currencies and there will be a rush to Gold which through centuries has shown its strength against any paper currency.
     
    Here are the equities I am bullish on and have established positions in these past 3 weeks:
     
    ABX - Barrick Gold
    EGO - ElDorado Gold
    GDX - Gold Miners ETF
    LIHR - Lihir Gold ADS
    NEM - Newmont Mining
    NG - Novagold Resources (A speculative low priced play that has done very well last 3 weeks)
     
    Next week I look to establish positions in the following Gold equities:
     
    AUY - Yamana Gold
    GG - Goldcorp
    AEM - Agnico Eagle Gold
     
    Of course, before making any investment I check the charts and all the above Gold equities are currently strong buys on both Daily and Weekly charts. Having a investment in Gold is wise on yet another front – in the event of a calamity of a market meltdown history has shown that money rushed into Gold equities. So if you don’t own puts or have another hedge against a market meltdown it may be wise to consider having a % of your portfolio in Gold equities as that hedge against calamity. In any case it is hard to go wrong with Gold because during the great crash of 2008 Gold held up its value nicely and actually rallied towards the end of 2008. In an uncertain market you can’t go wrong holding Gold equities in your portfolio. Every single market downturn in the past has showed that Gold is that one asset that protects you in times of uncertainty and in times of serious inflation. Don't go without having some Gold in your portfolio!
    Stocks: ABX, GDX, LIHR, NEM, NG, AUY, GG, AEM, EGO
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  • InvestBaboo
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    Comments (229) | Send Message
     
    Author’s reply » A quick comment on why I don't own GLD - the ETF that is the best alternative to owning physical Gold. I would rather own solid Gold than ETF Gold. I have also seen that when GLD appreciates the Gold miner stocks do even better putting in a significantly better performance than GLD.
    16 May 2009, 02:47 PM Reply Like
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