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It's Not Too Late to Get Into Gold Stocks

By Jeff Clark
Thursday, July 14, 2011

"It was the most expensive vacation ever," my friend Sean confessed to me on the telephone last night. "Not only did we go to Italy and pay $1.45 for a euro, but I was out of the country when you said to buy gold stocks two weeks ago. Now what am I supposed to do?"
 
It has been a great two weeks for gold bugs. The Market Vectors Gold Miners Index (GDX) is up 15% since the bullish percent index for the sector triggered a "buy signal." Many individual stocks are up as much as 30%. And if you traded call options on the sector, you could be looking at triple-digit gains.
 
Like I said, it has been a great two weeks.
 
But what if you missed the boat? What if you were out of the country, or just caught up doing other things? What do you do now if you missed the gold stock rally?
 
First of all, understand that gold stocks ARE going to go higher. Gold's bullish percent index (BPGDM) has barely budged off the bottom... And there is plenty of room left for it to run. Take a look...
 
 
 
The index closed yesterday at 33, and it won't get overbought until it rallies above 80. Despite the big rally we've already seen, there are even bigger gains ahead.
 
Nothing moves in a straight line, however. Gold stocks are notoriously volatile. Big rallies one day are often followed by big drops the next. Chasing the stocks higher after a big move is rarely a good idea.
 
Rather, let's use the action last year – after the BPGDM buy signal in February 2010 – as a guide...
 
 
 
As you can tell from the chart, the buy signal in February 2010 sparked an immediate, nearly vertical rally in the gold stocks. GDX popped 12% higher and left many traders wondering if they had missed the boat.
 
Gold stocks then pulled back and gave up roughly half their gains. Anyone who missed the first move could have hopped aboard the trade at that point and earned 20% over the next two months.
 
We're probably headed for something similar this time around. GDX is up about 13% since the buy signal two weeks ago. It has been an immediate, nearly vertical move. Now, the sector is due for a brief pullback. A 50% retracement of the gains would put GDX at about $56 per share.
 
That looks like a good spot to start buying if you didn't get in earlier.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

Two weeks ago, Jeff called a surge in gold stocks. He nailed it. Get the full story here: Why Gold Stocks Are Ready for a Big Rally.
 
Our sister site, DailyWealth, is predicting triple-digit gains for one gold stock. And while it's jumped significantly already, you haven't missed it yet... Your upside potential is still huge. Steve shows you a way you could potentially make much more than 100% gains, relatively safely, in gold stocks...

In The Daily Crux
Market Notes
U.S. dollar falls after Bernanke says more stimulus is possible.
 
Gold breaks out to a new record high of $1,600 per ounce.
 
Chesapeake Energy spends $1 billion to help advance natural gas as transportation fuel in trucks... Westport and Clean Energy Fuels soar.
 
Gold miners resume uptrend... Newmont, Barrick, Goldcorp, Eldorado, Agnico-Eagle, and Kinross all touch two-month highs.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1317.72 +0.3% +20.3%
Oil (USO) 37.93 +1.7% +12.3%
Gold (GLD) 152.77 +0.8% +30.2%
Silver (SLV) 35.20 +0.9% +99.8%
U.S. Dollar 75.70 +0.6% -9.4%
Euro 1.42 +1.3% +11.2%
Volatility (^VIX) 19.87 +8.1% -18.7%
Gold Stocks (^HUI) 565.11 +3.5% +22.7%
10-Year Yield 2.89 -0.7% -7.1%

World ETFs
Symbol Price
Change
52-Wk
S. Korea (EWY) 64.61 -1.6% +37.0%
S. Africa (EZA) 69.30 +0.1% +27.7%
Israel (ISL) 17.23 -0.7% +25.8%
Taiwan (EWT) 14.71 -1.3% +25.4%
USA (SPY) 131.40 -0.4% +24.1%
Russia (TRF) 21.31 -0.3% +23.4%
Canada (EWC) 31.40 +0.4% +22.2%
Singapore (EWS) 13.58 -0.7% +19.2%
Lat.America (ILF) 49.53 -0.5% +15.5%
Japan (EWJ) 10.48 +0.3% +11.5%
India (IFN) 29.55 -0.5% +5.6%
China (FXI) 40.89 -0.9% +3.1%

Sector ETFs
Symbol Price
Change
52-Wk
Internet (HHH) 77.98 -0.9% +49.5%
Oil Service (OIH) 149.23 -0.9% +46.8%
Basic Mat (IYM) 78.61 -0.3% +41.1%
Retail (PMR) 21.59 -0.2% +38.2%
Consumer Svcs (IYC) 73.32 -0.3% +32.9%
Industrials (IYJ) 69.28 -1.0% +32.8%
Telecom (IYZ) 24.78 -0.4% +32.1%
Real Estate (IYR) 61.73 +0.3% +31.3%
Transportation (IYT) 97.32 -1.1% +31.0%
Big Tech (QQQQ) 57.52 -0.8% +29.6%
Biotech (PBE) 22.31 -0.1% +29.4%
Media (PBS) 14.97 -0.6% +28.2%
Software (PSJ) 26.72 -1.6% +27.8%
Water (PHO) 19.37 -0.7% +27.4%
Health Care (IYH) 73.48 +0.0% +25.1%
Defense (PPA) 20.00 -0.7% +22.8%
Construction (PKB) 13.11 -0.3% +22.2%
Semis (PSI) 15.91 -4.2% +22.0%
Big Pharma (PPH) 70.80 -0.1% +20.8%
Utilities (XLU) 33.55 +0.5% +17.0%
Insurance (PIC) 16.35 +1.1% +15.3%
Financials (IYF) 55.40 -0.2% +7.6%
Nanotech (PXN) 8.55 -0.2% -0.4%
Alt. Energy (PBW) 8.60 -1.0% -2.5%

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