Heavy Buying Suggests a Bottom in Precious Metals
Homemade Investors
Nailing an exact bottom rarely happens, even for experienced traders and investors. Panic bottoms often come and go in a matter of minutes, and it's difficult to tell if a bottom is in until the dust clears. The most that one can hope for is to get in at reasonably low prices somewhere near the bottom. Prices are still relatively good at this point, but they're up quite a bit from the bottom. What I bought Here are some of my purchases. On Monday I bought GLD (the gold bullion ETF), AEM (Agnico Eagle Mines), and GDX (a gold miners ETF). On Tuesday I bought GG (Gold Corp). I also bought some silver bullion yesterday when the spot price was around $14.50. I chose my gold stocks from among those that performed the best over the past several months and which fell the least in the recent decline. The tendency of a stock to outperform others on rallies and declines is called "relative strength." Stocks that exhibited good relative strength in the past tend to do better on recoveries than those that struggled. With this in mind, I generally resist the urge to bottom feed on shares that have fallen the most, and instead focus on those that fell the least. It's not a rule that everyone has to follow, but you should be aware of this tendency. One more thing - I put stop losses on my stocks, right underneath the lows of the past few days. That way I'll be out with a minor loss if there are any surprises to the downside. I'm not expecting my stops to be triggered, but this type of insurance has saved my neck on many occasions. Gold and silver shortage Last March, when the price of gold went up to about $1,030 and silver tagged $21.50, many (if not most) bullion dealers posted messages on their websites stating that they were either out or that they were experiencing shortages in gold and silver bullion (especially silver). This was caused by panic buying, which often happens when prices move up very fast. (Buying because prices are high and "may never come back down again" is almost always a bad idea, so I'd suggest avoiding it whenever possible.) It looks like we're having a similar shortage right now, but this time it's because prices are cheap. I've been on several websites that have notices posted to the effect that they've been swamped with orders, they're out of goods, you'll experienced delivery delays, etc. My local coin shop was completely out of silver bullion when I called them yesterday. I've been hearing similar reports from around the country. Just this morning, I received an email from the American Precious Metals Exchange (www.APMEX.com) which stated that they, their suppliers, and other dealers were experiencing gold and silver shortages. (APMEX still has some good stuff in stock though.) You can read APMEX's official comments on this issue via the following link: http://apmexdealer.blogspot.com/2008/08/silver-gold-shor tage-announcement.html Heavy buying of bullion by investors suggests to me that prices have probably reached a bottom. I could be wrong here, but bullion shortages in the face of high demand generally lead to higher prices. Have a great week! P.S. Now that many of us are loaded up on precious metals, it might be time to start focusing on other trades. One trade that I'm looking to enter soon is a short position against the market. (For you newbies, that's when you make money as the markets drop.) There are several excellent ultrashort ETFs out there which go up 2x faster than their corresponding indexes drop. I'll probably issue an alert once we get closer to a suitable shorting point. I just hope I don't miss it! ******************************** To receive our FREE EMAIL NEWSLETTER, visit http://www.HomemadeInvestors.com. Disclaimer: Homemade Investors is published by Homemade Investors LLC. The information contained in this article does not constitute personal investment advice and is not designed to meet the personal financial needs of any individual. Investors should seek advice from a qualified investment advisor before entering into any transaction. The information contained in this article is deemed reliable but is not guaranteed. The information and opinions contained in this article are subject to change without notice, and there is no obligation to update such. To republish this article, visit http://www.HomemadeInvestors.com/reprint for guidelines. © 2008 Homemade Investors LLC. All rights reserved. |
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| It's probably the case that the worst is behind us in the gold sector. Gold found support near $800 and silver just above $14. Unfortunately these low prices didn't stick around for long, but I'm hoping that some of you were able to fill your orders at decent prices over the past few days. |
| by Daniel R., Homemade Investors Wednesday, August 13th, 2008 |