Customer Service 1 (888) 261-2693
Advanced Search

Get Ready to Buy Gold

By Jeff Clark
Thursday, March 5, 2009

The guilt associated with my strict Catholic upbringing has finally gotten the better of me... and I have to confess.
 
You see, last week, I warned you gold and gold stocks were on the verge of a selloff. But I didn't tell you the whole story.
 
In my defense, the whole story likely would have prevented you from acting on what I wrote. My intent was to point out the risk of buying into the gold stocks amidst such euphoria and to suggest there may be some fast profits to be made by betting on the downside.
 
Gold and gold stocks are much lower now than they were last week. And if you took my advice, you're happier today than you otherwise would be. (In fact, my S&A Short Report subscribers pocketed up to 100% gains on the short gold trade I wrote about last week).
 
But here's the BIG story...
 
Gold and gold stocks will be HUGE winners this year. Last week's selloff in gold is consistent with the chart I shared with you last week. But it's not consistent with the big picture.
 
Here's an updated version of last week's chart, which shows the ratio of gold mining stocks (GDX) to gold (GLD)...
 
 
 
As you can see, the ratio broke down from the bearish rising-wedge pattern and generated a sell signal. So the path of least resistance is now lower.
 
However, here's a look at the big picture of this ratio...
 
 
 
As you can see from this long-term chart, the ratio of gold stocks to gold typically trends between 0.45 and 0.70. At the current reading of 0.35, gold stocks are cheap relative to the metal.
 
So this long-term chart is at odds with the short-term chart. Gold stocks are historically cheap relative to the metal itself. But are they cheap enough to justify buying them right now?
 
Not yet.
 
Here's what I'm looking for...
 
 
 
Gold has support at about $890 per ounce, and it has extreme long-term support at $823. I'm willing to nibble on the gold stocks if the metal drops slightly below $900. And I'm willing to buy heavily if gold drops closer to $800 per ounce.
 
This year will be the year of the precious-metals stocks. The sell signal generated last week gave us nice gains on the short side. The really BIG profits, however, will happen on the next buy signal.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux
Market Notes
An unbelievable collapse continues... GE hits 18-year low around $7, set to lose pristine debt rating.
 
Oil stocks rally... most up over 5% yesterday.
 
American icon Harley-Davidson hits new low... December 2007: $70 a share, now: less than $9.
 
Earnings today... Icahn Enterprises, Noven Pharmaceuticals, Steinway Musical, West Marine, Winthrop Realty.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

Recent Articles