Tuesday, May 18, 2010

Zeuro Support

Euro hit 1.21, which is support.  Beyond this there is light support at 1.17-1.19 with larger support at 1.16.  If you were to flip the Euro chart, it may help you see where we are in this parabola.  Volatility is and will continue to rule.  The boat is getting really heavy on one side and pretty soon it will come barreling back the other way.

I have stepped back into call options in AUY and CDE.  I had hoped to do so with gold hitting $1200 or even the $1166 targets I gave, but the price patterns have tempted me back in.  I'm ready for a move to the lower targets, 1166 gold and 10.76 AUY (gap support + .618 retracement level), for example but do not favor that before we at least get a little move up to say 11.46 AUY (and potentially even eliminate the need to test further lower support).

The key is the Euro/currency markets.  Once the Euro reverses, it will in a major way.  The knee jerk reaction could be some selling in gold as the Euro panic eases somewhat.  The selling will be met by eager buyers and with the dollar dropping we should see some rocket fuel in gold.  At that point the Canadian miners for us Americans will give us some additional rocket fuel due to the currency exchanges (Cando strengthening).  So even though gold may take a little hit, it can be compensated for through exchange.  In addition, volatility should be increasing, which can help increase the value of option positions.

Yamana Gold AUY/YRI.TO has broken out of its box pattern and has so far retested the top of the box - we want to see this former resistance now act as support.  If so, we can expect a large move to the upside, to at least $12.60 USD.

Metanor MTO.V has a very bullish posture about it, it's my largest junior mining position.

I haven't found time to post chart but perhaps tomorrow I'll be able to.


Friday, May 14, 2010

Gold Gold Gold Gold Fe Va Va Va Fever

I have enjoyed watching the evolution of gold through the years.  For me, it started after a trip to Boulder, Colorado when I was around 12 years old.  We toured an old gold mine and while the guide talked about its history I was busy going through an ore cart.  I still have a number of the quartz specimens I pocketed.

I started watching the Gold Fever show on the Outdoor channel about 4 years ago and their theme song sometimes gets stuck in my head...Gold Fever, it's true what they say...once you are bitten, you'll have the fever for life.

Over time I've studied enough about cycles, numbers, and structure to temper the fever when cyclical periods of decay warrant.  Now is not one of those times, although investment rotation and risk management comes into play.

I sold all my call options Monday afternoon and Tuesday morning - my focus has been on AUY, ABX, and CDE (all who recently announced fantastic earnings, cash flow especially).  Having sold my options doesn't mean I think gold/gold miners are done.  On the contrary I'm still bullish on the large cup/handle formation that's quite clear.  What I'm doing though is managing risk and have switched to low risk but potentially very high reward junior precious metal miners (JPMs).  These include: Metanor MTO.V/MEAOF, MDN.TO/MDNNF, Alexis Minerals AMC.TO/AXSMF, Barkerville Gold Mines BGM.V/BGMZF, and then I have a small position in Starcore Mines SAM.TO/SHVLF and an extremely speculative (small capital and not recommended) position in ATW Gold ATW.V.  I bought all of these Wednesday through Friday.

Since my sell, gold and the major gold miners have pulled back as expected, stepping into the large gaps created after their initial liftoff.

If you study the charts of the large cap miners going into the big move, you can see how difficult it is for the average investor to have caught this move.  You either understood the structure, numbers, and timing of the trade and were in, or you didn't and missed out.  Example is Barrick Gold, ABX.  After it's tight 8-day trading range, it burst higher and has since consolidated at these levels - the high of which was made at 10am on the gap up.  You were in or you were out - there was very little imbetween due to immediate explosion, giving no chance to those without confidence.

Gold has entered a new cycle.  It is going to a minimum of $1360 over the course of the next month.  It's possible we quickly test $1200 and possibly even $1166 before this next surge.  Keep a close eye on the structure and the way gold bounces between key levels/numbers for clues to its intentions.  The Zeuro, formerly known as the Euro, has broken 1.26 which paves the way to 1.21 at least.  Gold, having taken back its role as a currency in times of crisis, will continue to benefit tremendously from this perceived chaos.  Even after the Euro straw man drama is over, the theme will continue with the target shifting towards London, and individual U.S. states who are in far worse condition than Greece.  It is easy to see how these ailments will continue to lift gold to higher highs (even as the uneducated whine about how expensive it is...that it is a bubble and they wouldn't touch it).  To those that say they cannot afford Gold, I say you cannot afford NOT to have gold.  You can quote me on that.

After this high in gold, look for a long drawn out decline in gold that will last 3-5 months.  For those wanting to buy, you will have another chance later this year...but after that you will find it very difficult to acquire any at any reasonable price.  The miners should CONTINUE to show strength, despite gold taking a breather.  This will help normalize the ratio between gold and gold miners, which is still totally out of balance (miners need to go UP).  It will be very volatile but an extremely profitable period.  Study the oil "bubble" and the oil stocks $XOI 2002-2005 for clues as to the nature of the gold miners behavior.

I expect the $HUI to surge towards 660.  I recommend moving any profit you make into physical assets in the forms of machines, land, foreign currencies, or investments outside of the U.S. or paper assets.  Personally, I am getting more coconut land, beach property, Philippine currency, and hopefully a few recycling machines from China.  Stay down to earth, don't get cocky, and remember that your Gains are someone else's Pain.  The gold bubble is like other asset bubbles but has some unique characteristics, in that it is especially devasting towards the average person...be careful what you wish for with gold, you just may get it.

Look for the $USD Index to hit 89-92 in the "your crappy paper is better than ours" game.  A monumental decline will follow...one for the history books.  You can quote me on that, too.

Charts to follow.