Monday, January 26, 2009

Important gold and gold stock day

Gold broke a trend line over the past two trading days and has now met up with an older trend line:

Gold stocks were down today despite gold being up for the day and look wobbly and tired (probably from altitude sickness after 100-200% gains over the last few months):

This divergence between gold stocks and the price of gold is often a great clue to a trend reversal at the end of a bull run and is a signal (never used in isolation, of course) to take profits on longs or go short whether we're talking gold itself or gold stocks. The chart below is a 5 minute intra-day chart over the past few days with the GLD ETF [black and red candlestick plot on the chart] used as a proxy for gold price and the GDX ETF [black line plot] used as a proxy for gold stocks:

Anyhoo, I couldn't resist the bait and went short NEM (Newmont) via put options for a quick (likely less than 2 weeks) trade. I previously shorted NEM for a quick 35% profit back in early January, so why not do it again? After this correction, which may take us into mid-February, it will be time to load the boat with gold and gold stocks for the fantastic spring '09 rally.

I am in this to make money first, so I am happy to short or go long anything that I think can make me money. I love gold and gold stocks, but I will short the hell out of either if I think I can make some good money. Gold stocks are volatile and this means big gains in either direction when a move is made. I still strongly believe gold and gold stocks are the best (and only!) buy and hold investments out there for the next few years, but I use gold stocks as trading vehicles and keep physical gold (i.e. real cash money that actually requires effort to produce and is scarce) as my portfolio's bedrock (i.e. only accumulate and never trade).

Wikinvest Wire