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A Reliable Buy Signal for Gold Stocks

By Jeff Clark
Thursday, December 15, 2011

The phone calls and e-mails started at 5:00 a.m. yesterday.
My friends and contacts were panicking over the action in gold... And they wanted to get my take on it. Gold was down $90 per ounce at one point yesterday. Since August, it's down $300 per ounce. Gold stocks are trading at their lowest levels in two years... Famed trader Dennis Gartman announced that he sold 100% of his personal gold position. And predictably, the talking heads on CNBC were fanning the flames.
So my phone was ringing off the hook.
I've seen this situation many times before with regard to the overall stock market. Anytime the market suffers a serious correction and stock prices tailspin lower, my phone goes nuts. People panic. They want some advice on what to do. This almost always happens within a day or two of an important market bottom.
But this is the first time I can ever remember getting so many calls about gold. "I'm dying here," one caller said. "Every position is crushed. I'm going to get margin calls. I don't know what to do."
Think about this for a moment...
At the lowest level yesterday, gold was down 18% from its August high. Yet this person says he's "dying." He's "crushed." Just about every other e-mail and phone call carried the same tone.
There are two things to take away from this situation... First off, no one should ever have so much exposure to anything where an 18% move in the other direction causes death or crushing. More importantly, though, this sort of emotional reaction to price decline usually signals a selling capitulation and an ideal time to start buying.
Admittedly, I owned a handful of gold stock positions heading into this week's decline. So there were some bruises in my portfolio as well. But given the degree to which my friends were panicking, and given the attention from the TV talking heads, I started adding to my gold exposure yesterday morning.
There's no way to know for certain that yesterday's panic will mark the end of the gold and gold stock declines. This is an emotional market environment and anything can happen. Oversold conditions can become even more oversold. But these are the conditions that create the best buying opportunities...
If you've been waiting for a pullback to buy precious metals and/or precious metal stocks... you now have that pullback.
To paraphrase an old Wall Street saying... nobody rings a bell at the bottom of a gold stock decline.
But lots of folks ring my telephone.
Best regards and good trading,
Jeff Clark

Further Reading:

Steve's go-to gold insider, Van Simmons, recommends an "outside the box" way to play the precious metals sector. This investment boasts limited downside risk and hundreds of percent upside. Read more here: What My Most Trusted Gold Insider Is Buying.

In The Daily Crux
Market Notes
Cash is king... U.S. dollar index surges to its highest level since January.
Huge drugmakers defy the rest of the market... Pfizer, Bristol-Myers Squibb, and Eli Lilly touch fresh 52-week highs.
First Solar plunges 20% in a day after slashing its profit outlook for 2012.
Copper is up 10% from its October "correction" lows.
Market Watch
Symbol Price
S&P 500 1211.82 -1.1% -2.4%
Oil (USO) 36.66 -5.1% -3.3%
Gold (GLD) 152.89 -3.5% +12.3%
Silver (SLV) 28.07 -5.9% -2.6%
U.S. Dollar 80.54 +0.3% +1.5%
Euro 1.30 -0.4% -3.0%
Volatility (^VIX) 26.04 +2.5% +47.9%
Gold Stocks (^HUI) 508.89 -3.0% -11.9%
10-Year Yield 1.90 -3.1% -44.9%

World ETFs
Symbol Price
USA (SPY) 121.74 -1.1% -0.4%
S. Korea (EWY) 51.27 -1.8% -11.8%
Japan (EWJ) 9.10 -1.1% -14.1%
Canada (EWC) 25.43 -2.3% -15.5%
S. Africa (EZA) 58.87 -1.0% -15.8%
Singapore (EWS) 10.95 -1.4% -17.4%
Lat.America (ILF) 41.99 -1.6% -18.6%
China (FXI) 34.38 -1.0% -19.9%
Taiwan (EWT) 11.76 -0.2% -20.3%
Israel (ISL) 13.12 -1.0% -22.0%
Russia (TRF) 14.01 -0.9% -37.0%
India (IFN) 19.80 -1.7% -39.5%

Sector ETFs
Symbol Price
Utilities (XLU) 34.61 -0.6% +15.1%
Big Pharma (PPH) 69.81 +0.1% +11.5%
Retail (PMR) 20.92 -1.2% +8.4%
Health Care (IYH) 68.49 -0.2% +6.1%
Consumer Svcs (IYC) 69.32 -1.0% +4.3%
Real Estate (IYR) 54.25 +0.6% +4.0%
Big Tech (QQQQ) 54.89 -1.6% +1.7%
Internet (HHH) 69.07 -0.8% -4.4%
Industrials (IYJ) 61.04 -1.4% -4.4%
Defense (PPA) 17.50 -0.7% -4.6%
Transportation (IYT) 85.26 -1.3% -5.1%
Media (PBS) 12.73 -1.2% -8.1%
Software (PSJ) 23.07 -2.0% -8.4%
Insurance (PIC) 14.68 -0.9% -8.9%
Telecom (IYZ) 20.41 -1.1% -9.5%
Biotech (PBE) 18.98 -0.1% -11.0%
Construction (PKB) 11.29 -1.5% -11.6%
Financials (IYF) 47.27 -0.2% -15.0%
Basic Mat (IYM) 62.33 -1.4% -15.5%
Water (PHO) 16.12 -1.7% -15.6%
Oil Service (OIH) 110.83 -3.7% -18.0%
Semis (PSI) 13.20 -1.7% -18.9%
Nanotech (PXN) 6.02 -2.0% -39.3%
Alt. Energy (PBW) 4.98 -3.5% -50.7%

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