Cline Mining, Gold, and Tiger Woods

by JDH on April 10, 2010

So, what should we talk about today? Tiger Woods return to the Masters?

Tiger’s creepy new Nike ad where he talks to his dead father? Yes, I know that Nike is the only major advertiser that has actually stuck with Tiger, so they have to do something, but was this it? I’m not sure I’ll be buying much Nike gear in the future.

Or should we talk about all of the parodies of the Tiger Woods ad? Or spend the day telling Tiger Woods jokes? (Hey, I heard that Tiger had a 69 today! Now I’m going to check to see how he did at the Masters!)

Or should we discuss the power of Oprah to blackball someone who wrote an un-authorized biography of her?

How about something more scientific, like the first species ever discovered that can live without oxygen? Or a discussion of why baseball games are so slow?

Not interesting? Okay, let’s talk about stocks, and the stock market.

Remember, back on March 26, 2010, I wrote a blog posting on: Cline Mainlining: Time to Buy? At that time CMK.TO – Cline Mining Corporation was trading at $1.35, and I said “at around $1.35 per share, this looks like a great buy.” The day after I wrote that post, I started buying. (I’m not like all of those other newsletter guys who buy a stock, and then pump it up in their newsletters. Of course I don’t actually have a newsletter, and I don’t have that many readers that it would make a difference, but that’s besides the point).

In that posting I commented that

The problem? The capital cost required to bring the New Elk coal mine into full production by 2013 is $65 million. At their year end on November 30, 2009 they had virtually no cash, so the $6.9 million they just raised won’t be enough to finish the job. Further financing will be necessary.

The good news is that on March 30 they completed more financing, which could raise as much as $45 million. So, I projected they needed another $58 million or so, so with this round of financing they are pretty close to where they need to be. So why, on Friday, was the stock up 22%? On huge volume?

I have no idea what’s going on. Obviously the 30 cent to 60 cent range was a trading range for about a year, and once it broke out of that range, it was onward and upward from there. The RSI is very high at 82, but’s it been very high for the last month, so who knows how much longer it has to run? Here’s one final quote from me: “If the mine is worth $1 billion, and there are 93,397,942 shares outstanding (including 8 million in options), each share is conceivably worth over $10 each.”

It’s possible that someone has decided that yes, $10 is a fair price, and they are buying. The volume of 9.5 million shares on Friday is much larger than the average volume of 1 million shares traded per day, so obviously something is up (other than the share price). If you have any theories, post them on the Buy High Sell Higher Forum. For now, I’m holding.


Now for my other favorite topic. Let’s look at some charts. (To see a bigger version of the chart, click on the chart).

Here’s gold, in $U.S., over the last year. Obviously we have observed a steady trend upward over the last year, and over the last month. However, we are now approaching resistance at the January highs, about where we are trading now (the purple line). The RSI at 67 is looking overbought, so a slight pullback from these levels would not be surprising. So, how am I playing it? As I reported on March 27 in my commentary on Gold Heading Higher, Market Heading Lower?:

If I’m correct and we have a bounce this week, I will follow my typical strategy and do some covered writing on these stocks to lock in my profits, and to get some downside protection.

Well, that’s exactly what I did. I bought more gold shares in the last week of March, including

Then, this week, I did covered writes on most of them. Brilliant, eh? The stocks went up when I said they would, and I covered to lock in my profits!

I should be charging good money for this blog! My thoughts on CMK.TO – Cline Mining Corporation alone were worth the price of a $1,000 per year subscription! Send money now!

Actually, not so much.

Here’s a chart of one of my typical gold holdings:

Here is the chart of AEM.TO – Agnico-Eagle Mines Ltd. On March 24 I increased my holdings, paying $56.45 per share (the blue arrow). Obviously I bought one day too early, but still, it closed Friday at 61.39, so that’s a great purchase point.

However, on April 6 (the red arrow), I then did a covered write, selling the then out of the money April 60 calls for 58 cents. Seemed like a good deal at the time, but of course the stock has increased every day since I locked in my profits. Oops. As of the close on Friday the bid/ask on the April 60 was $1.70 to $1.87, so I’m now down over $1 on that deal. Obviously I should not have sold the calls; I should have bought them.

My apologies. I will refund your subscription price.

Am I worried? Well, yes, a bit, since the options have one week to go to expiry. If Agnico-Eagle drops $1.39 and closes below $60, the options expire worthless, and I’m fine. If they don’t, I’m forced to sell my shares at $60, which is a notional loss of $1.39 at today’s prices (less the 58 cent premium I took in).

For now, I’ll hold. We are obviously at an overhead resistance point (the green line), so a pullback from here would not be surprising, so this trade may still work out well. I’ll report back next week.

Now, more charts.

First, remember the gold chart I already showed you?

Here’s the same chart, but with the Euro as the baseline:

See? Gold is at a new high. What would it look like compared to Canadian dollars?:

No where near a new high. In fact, in Canadian dollars, it’s in a down trend. How about this chart, with gold compared to the Dow?:

Again, with the recent strength of the Dow, gold does not look anywhere near as strong. Cool, eh? The unit of measure effects the perceived performance. It would therefore appear that gold is a currency play (well duh). As a Canadian, I’m disappointed that our currency is so strong (we are now around parity with the U.S. dollar). Without our dollar strength, gold would be doing even better. But that’s the point. Gold is the ultimate hedge against currency weakness, as proven by these charts.

One final note: We are still not yet at the Fibonacci retracement level of 61.8% that would be somewhere in the 1,225 to 1,230 range on the S&P 500, so I’m still expecting a big pullback in the near future. Like I’ve been expecting for the last year. A stopped clock is correct twice a day, and I will be proven correct at some point as well.

Time will tell. See you next week.

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