“Gold stocks have been taking it on the chin lately. And that's bad news for anyone who owns gold.
Gold stocks often move ahead of the metal. A rally in the stocks usually leads to a rally in gold, and a decline in gold stocks often foretells of weakness in gold. So the 20% drop in the Gold Bugs Index (^HUI on Yahoo Finance) over the past five weeks is a bad omen for the shiny yellow metal.
Gold is on the verge of breaking to the downside of a consolidating-triangle pattern. A move below $920 per ounce will likely set off a short-term correction down to support around $870.” You see, we know gold is in a bull market because the metal is trading above its 40-month exponential moving average (EMA), which defines a bull market for gold...”This from Jeff Clark, a well known trader with Agora Publishing.
From a Floydian perspective Gold (GLD) and lessly Silver (SSRI or SLV) are commodity plays in a world that has become commodity driven, and Gold is now thought of less as “the only real money”. This is wrong thinking. As China works us to a “world currency” and the G20 begin to consider it, as the dollar weakens again, and it will, Gold will become a currency.
In the meantime we may consider both a short term put on Gold (GLD) on the downside potential, and plan a long buy on GLD (which we already own a core position in. We’ve sold 2/3’s of our holdings thru 2/28/08 at 45% to 68% profits. Blue Chip subscribers that know all of our holdings saw us build 15% of our portfolio to GLD in the past 10 months, and begin to reduce it.
Here’s our suggestion for long term subscribers. Hold your remaining 1/3 of GLD, and buy puts short term on a downside. When Gold hits 870 to 820 we’ll consider adding to our position in GLD, if market conditions remain precarious.
