Tuesday, September 09, 2008

Time for Gold Mining Stocks

Top Line: Stocks were down hard and have more to go.

The stock market attempted to rally at the opening bell this morning but that effort failed and stocks tumbled most of the rest of the day and closed on their lows of the session. Tuesday's session presented some good opportunities, as well.

There are several topics to discuss this evening and we hope that there is time to get at least some highlights. Let's start with the gold mining stocks since they had the largest move that we could see. We suggest that you open up another window on your browser (you can use our link to Bigcharts on the left)and take a look at some of your favorite gold mining stocks. In case you don't have any favorites, we will mention a few here along with some gold funds and you will be able to see what we're talking about by looking at these dramatic charts.

We like to follow the HUI index and will use that as our basis for the discussion. If you choose a time frame of six months you will include the high for the year, symbol is HUI. The high in March was about 520 and today's close was right at 260 for a 50% drop in about six months. Looking back over the period from mid-July, you can see that the high was around 480 so in about two months the index has dropped 220 points with over 25 points just today. Looking back over just the September trading, six trading days, the index has gone from 345 to 260 in dramatic fashion.

We have mentioned that gold mining stocks usually lead the metals and this should be true now as well. Gold has not come down quite like the mining stocks have. You can see the gold chart (with one less decimal place--in case you're wondering, it allows a lower trading price) using the symbol GLD. In that chart you can see the March high over 1000 (100 on the chart). The price of gold has tumbled it's true but not like the mining stocks. We think gold will continue lower based on the mining stocks' lead.

Our favorite vehicles in this area are BGEIX (a mutual fund), GDX (an ETF), PAAS (a silver mining company), and NEM and ABX (gold mining companies). All of these have now come down to a place where the prices are compelling for purchase. It is possible that the lows of today will be exceeded in the short run but then they would be even more compelling. It is also possible that these prices represent the spike low that will be considered The low in this move.

The other thing about the move this group has exhibited over the past six trading days is that it could be a preview of what we will see in the stock market at some point (very soon). The GDX has dropped from 37.64 on the last day of August to today's 28.10 for a 25% drop in six trading days. SIX DAYS. It's time to buy the gold mining complex.

Some stocks drop quite fast all by themselves and today AIG and LEH were among them. AIG dropped nearly 20% to a new low for the move and LEH dropped 45%, yes today, on news that its talks with a Korean company had ended. LEH is scheduled to announce earnings on Wednesday morning. In general, financial institutions reversed any upside they had on Monday. Of course, as we write, the US stock futures are up this evening...

Just a quick comment about oil and gas, both were down today and made new lows for the move. Oil was down about $3 a barrel and gas was down about 10 cents a gallon...on the exchange, not the pump. Here in beautiful MN, gas is $3.47 this week and with today's 10 cent drop in the market we would expect pump prices to drop about 10 cents within a day or two...oh, yeah, right...of course we won't get that, it will be more like two weeks. Ok, we were a little aggressive on our date for $3 gas a Labor Day but we still think a $2 handle on the the gas price is coming...

We have other items to write about but there is no time this evening. We wanted to make sure to mention the gold mining opportunity, that was our main focus this evening. These things don't last very long.

CM sent us a link to an article that happened to be posted that described the weak rally on Monday. While it is a little late getting it to you, the points made in the article by the highly regarded Mark Hulbert coincide closely with the Update's.

We received a few questions over the past few days in regard to the recent drop in the stock market as well as some residential real estate questions and some further questions about the Fannie and Freddie Take Over, so we will try to discuss those in tomorrow's post. Any comments on these three or other topics would be welcome. Just click on the comment link below...as always, you can remain anonymous or tell us who you are, it makes no difference.

HUI: 260.25 -26.29 (lowest close since December, 2005 when gold was about $500)

FSI: 72.70 (lowest close since March 19th, last night's number was really 73.97)

VXO: 27.80 +3.08 (heading up to 50)

SDS: 70.85 +4.19 (SP500 was down big on Tuesday)
QID: 49.52 +1.65

Dow Industrials: 11,230.73 -280.01 (two day net gain of 9 points)


Trish said...

First of all, I love the new picture of you, Pam and Jackson celebrating Grandparent's Day! Second, I just wanted to comment on your prediction of gas prices. You realy think we'll see $2 again????

Anonymous said...

Thank you, Trish.

The Update said a $2 HANDLE meaning the front number will be 2, maybe $2.50 for example. This recent gas price drop probably came as quite a surprise to most people, considering all the Hype around Memorial day. We expect lower oil and gas prices going into next summer, say $75 oil and around $2 gas.


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