In the latest commentary regarding the situation on the market, I suggested that we might get a very rapid pull-back in the precious metals stocks, ALONG WITH THE TURNAROUND IN THE GENERAL STOCK MARKET. So far this turnaround did not materialize, but instead were experiencing a monster rally in the USD, which naturally puts the pressure on the prices of precious metals and corresponding shares. As a result we have plunging prices of even the best precious metals stocks.
The big money is made by being brave while others are fearful and nobody should argue with the fact that most investors are currently terrified. Since that is the case, the question that we need to ask ourselves is how will I take advantage of this opportunity. Vast majority of investors will not take it at all, as people tend to act on emotions, not on the common sense - buying here is way too scary for most investors. The easy way to play it is to wait until shares are back up and then buy. The problem is that at that moment this extraordinary buying opportunity will be over. You want to buy low, right? Arent the prices low already? Arent everyone and their brother bearish on stocks of any kind, including PM stocks? Then it seems that this is the time to take action. I am going to use most of my cash reserves to purchase precious metals stocks and especially call options on them.
As you know (updates and alerts were sent), during this decline I engaged in a few speculative transactions. Because of the volatility and the declining trend, these were risky transactions and most of them did not play out as expected. Yet, the overall rate of return is impressive, as one transaction with extraordinary profit is more than enough to compensate the losses. Therefore, the speculative part of my portfolio compensated to a certain extent the losses on my long-term holdings. The word losses is purely theoretical, as they are all paper losses. I dont intend to sell at these prices, although I will switch the juniors that are acting weak to those, who held up relatively well during this plunge.
Did we bottom yet? I dont think so, but we are very close. As mentioned earlier, we now have the best companies in the sector (in my view that is), including AEM and KGC underperforming other companies from the sector. This usually takes place near or at the end of the fall. We have the general stock market (SPX) reaching a long-term support level the low of 770. I therefore expect to see at least a temporary bottom in the SPX somewhere in the 770-810 range. According to my calculations this should correspond to the 125-135 level in the HUI and this is where I plan to buy aggressively. As far as gold is concerned, it should not go lower than $630.
The stocks that I plan to purchase are GDX, AEM, GOLD and optionally KGC, FCX, BVN - depends on the market situation. I currently favor gold stocks over silver stocks, as gold tends to perform better in the first stages of a rally, whereas silver usually catches up later. The bottom should materialize on a very high volume if it is not, I will not proceed with purchasing options (only stocks), as the probability of that day being in fact a bottom will be too low.
The prices can and probably will go down and reverse very quickly, so unless you can watch the market all the time, it is prudent to have your orders placed BEFORE the bottom materializes.
Please make sure that you speculate only with the part of the money that you can afford to lose.
