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Strategies & Market Trends : Galapagos Islands -- Ignore unavailable to you. Want to Upgrade?

To: Techplayer who wrote (29125)	2/26/2003 8:00:34 AM
From: Techplayer	Read Replies (2) \| Respond to of 57110

Gold share comments to investigate 00:03 ET MONTE CARLO, Monaco ( "HSL") -- Bullion rose from a week ago Wednesday low of $341 to Tuesday's high of $360. But you wouldn't know it to look at any of the gold share indices. Both the AMEX Gold Bugs Index (HUI) and the Philadelphia Gold Silver Index (XAU) slid more than 4 percent over the one week period. What happened? Two groups attacked the shares: Hedge funds Certain hedge funds are long bullion and have been shorting shares as a hedge -- not a quaint action for a hedge fund! Some hedge fund managers saw that gold at $380 was 15 percent over its 200 day moving average -- the highest premium in 15 years -- so it was prudent to hedge. If they¹re lucky, they'll profit on both positions -- if they cover before the turn appears obvious. Gold cartel The gold cartel put their boot in, shorting shares in the hopes of creating a negative climate so bullion would also fall. Bullion finally caved in by day's end, falling back from its $360 Tuesday high. In all this to and fro action, the gold indices formed small, toppy chart patterns and fell below a kind of neckline, targeting a lower price. Not deep in price but deep in nervous-making for weak holders. Affect on shares The fascinating quirk Tuesday was the difference in behavior of individual gold stocks, such as Royal Gold (RGLD) , which slumped badly on disappointing earnings. But AgnicoEagle (AEM) rose from a bullish wedge pattern. Some, like Eldorado (EGO) , Glamis (GLG) , Newmont (NEM) , Viceroy and Iamgold (IAG) were up fractionally. Others, like Goldcorp (GG) , rose, then lost the gain. High River rose to a near prior high. Meridian (MDG) collapsed and ditto for Novagold but RioNarcea rose nicely. Tan Range (TNX) was the star performer, racing to a new peak. What to do? Where is the gold price going? In my opinion, it will shoot past $400 in the months just ahead, probably by August. Later it will move to even higher numbers. For the month of March, our indicators imply a return to higher prices for both bullion and shares -- but clearly, you need to pick and choose your gold shares as carefully as you do with any other stock. There is group sympathy of course, but the difference between the strong and the weak is tremendous. Sticking to the core If you're already invested in gold stocks, stay put in your core positions. For active traders, sit tight if you're fully invested. If under-invested, place buy orders at possible downside targets for these pesky toppy patterns. Always feel free to upgrade parts of your core holdings. For instance, consider selling Meridian and buy Tan Range with the proceeds. If you're hanging on to a stock because it's core, regardless of its relative performance, then your end results will clearly suffer. Those who just buy gold shares and hope for the best will profit in this likely five-to-seven year gold bull market. But those who buy and sell -- and rebuy and resell -- will outperform the "hold-and-pray" group by 75 percent, in my opinion. To watch your gold shares rise, then fall, then rise, then fall, should teach you there's a better way. How big should your core gold position be? Rule of thumb: Two-thirds of the total -- but it's up to you. You might prefer to have only 40 percent or 50 percent of your gold shares allocated to the core position. Trade the rest -- but upgrade your core group of gold stocks. I'm often asked for a list of stocks in the Schultz Gold Index. Sorry, but we feel it would be a mistake to do so as it would let hedge funds and the gold cartel know which stocks to zero in on with their short selling. Final thought: treat gold shares as individuals, not as a group who all move together. Some are at year highs, some at year lows. Goodbye from your alchemist guru, Uncle Harry. Harry Schultz, editor of the "International Harry Schultz Letter", also publishes a weekly gold charts advisory called Gold Charts R Us. Over the last 55 years, he's authored 23 books and 13 newsletters and has held the Guinness World's Record as the "highest paid investment consultant" since 1981.