Gold fell below its mid-November low of US$1,142 per oz. on Friday, sinking to US$1129.80 before rebounding slightly to close at US$1,133.30. This morning a bear raid in Asia slammed the price down to $1,088 for a short time. It is currently hovering just above $1,100.
So I was wrong. Mid-November was not the bottom.
But I am not awash in tears. In fact, buying off that November bottom and then managing risk by selling parts of positions when the price performed means the Maven portfolio was still up 11% as of today’s open.
(Portfolio performance calculated as simple average of gains and losses to date of active holdings. All equities are given equal weighting except those where partial sells lowered the average cost base (ACB). For those, contribution to overall portfolio performance is reduced proportionate to the amount of holding sold; if a third was sold, the gain on the ACB is reduced by a third for portfolio performance calculations.)
Couple things I like about that.
During gold’s January run I kicked myself many a time for not jumping onto certain stocks that jumped 50% in a month. Over the subsequent six months at least a dozen explorers and miners have gone on bull runs; some are in the Maven portfolio but others I missed.
A solid pullback now will generate a second chance to enter some of these winners. And I will take them.
I will also add to some of my positions. If this is the true bottom, stocks should soon be as cheap as they going to get. I’ll take that opportunity to pick up more of the most prospective stories in the Maven portfolio.
I outlined my investing outlook to Maven subscribers mid-last week. The first point was: A crash might be coming. That was validated within 24 hours.
Another directive: Don’t try to catch a falling knife. I do not know what gold is going to do. Forced to guess, I would say there is more pain on the horizon. Chartists and technical analysts generally agree that, once it broke below $1,142, gold had another $100 to lose easily, perhaps more. Sentiment is negative; momentum is to the downside.
The only significant support I see for gold comes, ironically, from those seeking to profit off its slide: the shorts. Short selling positions are massive right now, in gold and in gold miners.
All those shorts create downward price pressure, to be sure – but only until prices slide enough that the betters get nervous.
Short selling is a very exposed gamble. The faster the price of gold falls the harder it will be for gold shorters to stick to their guns. As gold declines pressure will build on shorters to buy gold to cover their bets.
So that’s positive for gold in the short term, once the price weakens even more. The bigger the resulting bounce, the more confidence it will create that this truly is the bottom.
After almost five years of pain, I think the mining bear market is now throwing its final punches. This last leg down might last a few days, a few weeks, or a few months. Wish I knew how long it would last, but I don’t.
What I do know is that, until it is, things are going to be ugly for those of us left in mining. And then it will get better.
So hold on. Perhaps don’t bother checking on your mining stocks this week. Don’t let yourself check the price of gold too often. The bleeding will gradually slow, then stop, and then it will be time to average down on favorite holdings and establish positions in quality stocks that you have long eyed.
But no rush.
In her letter, Resource Maven explains what she is buying and selling, and why. Maven has bought into several of the markets best - performing stocks well ahead of the curve. She regularly identifies exciting new exploration opportunities and manages the inherent risk by selling some into speculative gains. And the mine builder and operator stocks that form the basis of the portfolio give strong, ongoing leverage to the rising prices of gold and silver. She has your precious metal bases covered.
"Gwen - I just analyzed our returns for the past month. We had a 36.7% return on our portfolio in one month! Thank you so much for your excellent, thoughtful and timely guidance. 12 of the 18 stocks in my portfolio were recommended by you. 4 were recommended by other MIF letter writers and 1 each by Eric Sprott and Rick Rule. Yes it was a good month for precious metals - Gold was up $50 and Silver $3.90 - but “our" portfolio performance more than doubled the 16% of the GDXJ"
As a recent subscriber to your newsletter, I wanted to say thank you for all the amazing information and detailed analysis regarding the many companies you're invested in. I cannot begin to imagine how much time you put into your work. I am very new to investing in the mining sector and did quite a bit of research before selecting your newsletter over the many others available. I was nervous about signing up to anyone's newsletter as there is so much negativity on the internet about newsletter writers (e.g. pump and dumpers). Anyways, I'm feeling good about being aligned with you.