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"Gold Fever" Is Here... Time to Sell Gold Stocks?By
Thursday, October 7, 2010
"We're about to get the first sell signal of the year for gold stocks," my friend Jeff Clark told his Short Report subscribers yesterday.
And when Jeff talks, I listen. He is the best short-term trader I know.
Jeff says gold stocks are seriously "overbought" by his studies. And he's looking for a 10% or so fall in the major gold mining stocks, starting about now. The duration of the trade could be anywhere from two to six weeks.
It's not just Jeff. Other "smart money" traders are worried about gold today, too. In Monday's Gartman Letter, Dennis Gartman was perfectly clear: "We will caution against any and all buying gold at these levels." (Dennis knows commodity trading. He's written The Gartman Letter, daily, for 23 years. It's the one letter I read every day.)
Does this mean it's time to sell? Is it time to get out of your gold stocks?
Actually, no...
That's the short answer from me. The longer answer is, it depends on your situation...
In my True Wealth newsletter, where we're long-term investors, we're keeping our position in GDX, the big gold miners fund. Instead of trying to time the zigs and zags, we're staying in. Chris Weber, a fantastic investor, is clearly long-term bullish on gold as well (as he wrote in yesterday's DailyWealth). He's also staying in.
But in the short run, if you need the money, if you're sitting on huge gains that you don't want to give back, or you're too levered, you might want to scale back. Listen to the smart traders – like Jeff Clark and Dennis Gartman. They think odds are high, respectively, for a 10% pullback in gold stocks and a $100 fall in the price of gold.
They call gold and gold stocks "overbought." I see gold as just too popular now...
Dennis Gartman touched gold's popularity anecdotally in yesterday's Gartman Letter, saying he's never had so many calls for interviews from the media – and 100% of the calls are for his opinion on gold. He said gold fever is high... but "fevers break."
It's not just Jeff and Dennis that see it... And it's not just anecdotal evidence... My friend Jason Goepfert at SentimenTrader studies sentiment. He says right now, public opinion on gold is at its highest level this year. The commodity futures contracts show the same thing... Large speculators are more "long" gold now than at any time this year.
So the time is ripe for a correction in gold... more so than we've seen so far in 2010.
But Dennis Gartman and Jeff Clark don't want you to confuse their short term positions with their long-term beliefs...
Dennis says, "We are not bearish of gold and we shall not even for a moment consider being short of gold."
And even though Jeff is making a short-term bet against gold stocks, he won't stay short. "It's difficult to short the sector as a long-term investment," he says, "because logic argues for higher gold and silver prices over time."
So long-term investors (like my True Wealth readers) should be prepared for some volatility, at the very least. No need to rush for the exits, unless you have an itchy trigger finger.
And if you're thinking about buying gold stocks, you might want to give it a couple weeks, based on the advice of better short-term traders than me – Dennis Gartman and Jeff Clark.
Good investing,
Further Reading:
If you like the idea of hopping in for gold's zigs and hopping out for the zags, check out Jeff Clark's how-to essay. The last six times readers bought gold stocks using his indicators, they made money... with safe, fast gains ranging from 15% to 110%. "If you do nothing but follow these overbought/oversold gold stock readings," Jeff writes, "you'll do far better in gold stocks than most folks ever will." Learn the system here: My Secret Gold Stock Timing System.
With gold and gold stocks at record highs, now's probably not the time to pile in. But there is one gold investment Tom Dyson likes here. Despite gold's run, this investment still trades at 2007 prices. Read more here: The Only Cheap Gold Investment Left.
Market NotesANOTHER EMERGING MARKET BEER WINNER Any discussion of our incredible emerging market strategy wouldn't be complete without a note about Tsingtao Breweries.
To recap, our "boring" – and incredible – strategy for investing in huge and growing economies like Brazil, China, and India is to pass on "high tech" companies. We'll just sell folks the basics, like soda, beer, and tobacco. It's a strategy that produced incredible returns in the U.S. from 1950 to 2000 (think Coca-Cola and Altria)... and it will do the same in emerging markets in the coming decades.
Yesterday, we highlighted the big uptrend in ABV, South America's largest brewer. Today, we head East... for a look at the largest beer brewer in China, Tsingtao Breweries.
Tsingtao is one of the original state-owned companies that went public during the country's early 1990s economic transformation. Global beer giant Anheuser-Busch InBev owns a large stake in the company. Tsingtao's profit surged 30% in the first half of 2010... which has helped shares triple since early 2009. Again, selling the basics is boring, but it pays.
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