A great rally to 630, followed by a retreat and a retest that failed, as both gold and silver prices fell. As the chart shows the HUI has gained and lost a 100 points in a matter of months. Volatility with go faster strips remains the order of the day.
The technical indicators are in the oversold zone with the RSI having just bounced off the '30' level to close today at 38.86. Also note that the STO has also reversed its downward trend and is heading north, coming from a low level to, as it is under the '20' level at the moment. The MACD is also deep into oversold territory so a quick reversal in gold prices could see a nice crossover on the MACD which is usually a positive sign.
In the lead up to the '600' level we discussed a number of our favorite gold and silver stocks, stocks that we would like to add to our portfolio as our research tells us that they are high quality producers and would add to the strength of our core position. However, it was with some trepidation that we watched a possible double top forming and the retest of the old high fail. So we sat on our hands unable to muster the courage to go on an acquisitions spree. Everything looked to be in place for a major move, political turmoil, various economies on the slippery slope, countries that cannot make interest payments on their debts, risk on risk off at twice the speed of light, reports from reliable sources about the demand for the physical metal, the printing presses poised and ready to roll, but we couldn’t jump. Why? The only reason we can offer is that old intangible known as 'gut feel' not very scientific or the result of any analysis, it just didn't feel right. Its similar to being at an intersection in the dead of night with no-one else in sight, but the traffic light is on red, the temptation is to go, after all what harm could come of it. So we sat there, all uncomfortable and irritated by own ineptitude. The outcome is that we still have our powder dry in that our 'opportunity cash' is still there on the sidelines. But, as you all know we are not fond of cash so there's another irritation to be wrestled with. In the longer term it probably wont make one jots worth of difference as gold and silver regain their balance and continue on with this bull market, dragging the producers with them to many more new highs in the future.
For us though, we have been skeptical about the ability of the miners to return to us a better profit than the either metals themselves or other related investment vehicles and that continues to be our stance as this breakout failed to impress.
Our strategy remains unchanged in that in that it has three elements to it. Firstly, buy and hold both physical gold and silver, secondly build a core holding of quality producing stocks (although we are not prepared to increase our holdings at the moment) and finally, in an attempt to gain leverage to the precious metals, the careful selection of a small number of options trades can generate handsome returns when compared to the movement of the underlying commodity. Our concentration remains totally focused on the metals space, it is exciting and can be rewarding along with being irritating and sometimes downright infuriating, but where would you rather be?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.