This week was not as good a week as last week. The broader markets pulled back, and when the tide goes out, everything goes out with it. My portfolio overall fell about 3%.
So am I depressed?
Nope.
I view all pullbacks as yet another great buying opportunity. So, this week, I bought.
Last week I discussed UUU.TO – Uranium One Inc.; they slashed their production forecasts, which hit the stock hard. I bought more this week, at prices under $10. I think this is a great example of a buying opportunity. The stock tanked due to lower projected production, but they still expect to produce about 2.1 million pounds of uranium this year, 4.6 million pounds for 2008, 8 million pounds in 2009 and about 11 million pounds in 2010, as more projects come on line.
That’s a production increase of 500% over the next three years. With increased production, and an increase in the price of uranium, we will look back on a $10 share price as a great buying opportunity. Grab it well you can.
On the topic of uranium, take a look at the chart on the right hand side of the page. I’m no “rocket surgeon”, but it sure looks to me like we are now moving off a bottom, and that’s very good news.
I increased my holdings this week of the following uranium, gold and silver stocks, because, again, they look inexpensive and poised for a run:
FRG.TO – Fronteer Development Group
IPT.V – Impact Silver Corp.
MAI.TO – Minera Andes Inc.
What else looks good?
Gold.
I have little doubt that we will see $1,000 gold before we see $700 gold again. The only real question is how fast will the increase be? Personally, I believe the rise will be volatile, with lots of ups and downs along the way.
Consider this: The RSI level increased to over 70 during the first week of September (when gold was around $690), and stayed there until around October 1 (when gold had a near term peak around $755). That was a run of almost 10% in less than one month.
Around October 25 we got back over the 70 level again, with gold around the $790 level. Another 10% run would put us around $870, sometime in the middle of November. A pullback into the $840 to $850 range would not be surprising.
My guess, therefore, is this: Sometime next week gold will take out the previous all time high of $850. (This previous all time high is a completely meaningless number when inflation and the value of the crashing greenback is factored in, but it’s psychologically important none the less). We will see lots of newspaper stories about gold at it’s all time high. When the public starts noticing the price of gold, that will signal a near term top.
At that point I will consider selling and locking in profits on 25% of my gold holdings.
Why only 25%? Because that “top” will be a minor top; we will see a very minor correction, perhaps lasting only a week, and then it will be onward and upward from there. I have no intention of selling; that would be insane in a massive bull market.
However, if we are going to have a minor down tick, I will take the opportunity to sell some calls on the gold stocks I own. That way I can pocket some additional cash, while still holding the underlying stocks. Candidates for covered writing will include G.TO – Goldcorp Inc, , K.TO – Kinross Gold Corp, and IMG.TO – IAMGold Corp, all of which are optionable in Canada. (Given the recent crash of the U.S. dollar, I’m keeping all of my holdings in Canadian dollars).
Of course there are no guarantees that my predictions will be even close to correct. However, nothing goes up in a straight line, so if I can skim some profits on the way up, why not?
I also believe that more volatility to the down side in the general market is inevitable. The credit crunch isn’t over yet. New accounting standards come into effect on November 15. I won’t bore you with the details, but if you have an accounting background feel free to read FASB Statement 157; essentially more strict disclosure of “crappy” investments will be required, which will no doubt lead to a further decline in prices of financial services companies, which will drag the entire market lower. As I said earlier, while a rising tide will lift all boats, when the tide goes out, everything sinks.
However, if stocks in general are getting hammered, what is an investor to do? Put their money in cash? That makes no sense if the value of your cash keeps crashing, as the U.S. dollar has been doing for months. Hard assets become the order of the day, and that means gold, silver and uranium.
So, to summarize: while we will have volatility, the trend is decidedly upward, so I will continue to buy on dips, take small profits (probably in the form of short term covered writing on my large cap gold holdings) when we have large upticks, and continue to remain close to fully invested (I’m down to 6% cash at the moment).
As always, thanks for reading, let me know if you think I’m missing the boat, and feel free to share your thoughts on the Buy High Sell Higher Forum.
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