This is from my wrap-up commentary on my forum today:
Well today was the perfect illustration of what I posted on yesterday. Gold limped into the open of the slightest of USD rallies, and it was open season on the entire PM sector. While most of the individual stocks were in the toilet today, overall the action in the producing juniors was much more bullish, with the HUI recovering most of the losses by the end of the day, and the XAU closing only slightly down.
For the junior explorers, it was a very much an ugly story. On my watchlist of over 80 stocks only a tiny handfull showed any green at all. Even more annoying is that several of these companies posted positive news on the day. There is no doubt that traders have been willing to get on board for the ride up from the selloffs, but jump off the bandwagon as the POG gets near multi-decade resistance at $430. This strategy has worked well for those that employed it in 2004 to lock in swing trade gains, but at some point the barrier will fall and the real party will begin for the sector. I hope many of these traders do not get caught out of the market when that happens.
As Bush likes to say, you are either for us, or against us. Well in the PM sector you may not be "for" a gold breakout, but you certainly have to be "against" dollar strength. The USD looks very sick, and I cannot see it returning to health anytime soon. The shell games and manipulation by the traders is sure to fail this time and when the $430 level falls, you will have specs that were sitting on cash jumping in at exactly the same time as retreating commercials will be looking to cover short forward sold gold.
In a sector that is backed by bullish fundamentals, selloffs from individual stocks on good news have to be seen as buying opps. CSG has presented very few of these so far, but on each dip the opportunity proved to be short term and those who picked up cheap shares have been rewarded. The news of rehabilitating the mine within a couple of months will probably help push CSG past the $1 mark by the end of this week, so for those able to buy in the high-80s, this may be the closest we see to a correction for a while.
QGX was strong today, on news announced to drill a similar package of land to Turquoise Hill that was a JV deal with IVN. I do not know if they will find any resource or not, but QGX may become the proxy to IVN that many speculators play ETG for.
FAN continued to see buying support today, at the expense of TKO, ARQ and NDM. I suspect that many of the shareholders in these companies all read reports by Rolston and Grandich, as both of these authors cover all the stocks, so when a hot report comes out for one the others tend to suffer. I missed the run in FAN and would not be a buyer at this level, but there is no telling how high it will eventually run. The drilling continues and perhaps in a year from now it will be trading above $3. However much of the increase is from the hype off the newsletters, and from momentum players getting on board, which may not hold up down the road. If I was on board FAN I would certainly hold it.
Leadership in the sector will continue to come from the larger cap producers. We may have more work to do before the breakout comes, but I am confident of my assessment that we face only about a 10% risk of a serious correction from the current level. Once the POG trades above $430 is when I expect the juniors to participate and in fact outperform the producers. Until then it is best to either wait patiently, or buy the bargains and hold tight.
cheers!
COACH247 |
