Gold: What’s Up? Silver?

by JDH on February 26, 2011

I have no idea what’s going on, so hopefully some of you can help me out.

Here’s a chart of gold (for larger versions of all charts, click on them):

It would appear that gold consolidated between October and the end of January, and has spent most of the month of February on the rise.

Here’s a chart of a senior gold stock, AEM.TO – Agnico-Eagle Mines Ltd.:

Here’s the same chart, but as a point & figure or P&F chart:

Obviously the news is not good, with a double bottom breakdown, and a downside price target of $63.

So why is it that gold seems to be recovering, but gold stocks aren’t? Agnico-Eagle isn’t the only one; here’s the chart of K.TO – Kinross Gold Corp.:

And yet, other charts look fine, like this one of G.TO – Goldcorp Inc.:

Why the difference? I have no idea.

Here’s the chart of silver:

Looks pretty, good, eh? New highs, and lots of strength. Not surprisingly, the silver stocks are looking good as well, like SLW.TO – Silver Wheaton Corp.:

So what does all of this mean?

Again, I have no idea, but if you want a guess, it looks like silver is looking a lot better than gold at the moment.  However, here’s another perspective on gold:

As a point and figure chart, gold has ended it’s bearish correction, and now has a bullish upside target of $1,620.

So there you have it.  As a non-expert, my expert analysis is quite simple: gold and silver will either go up or down, as will the underlying stocks.

So how will I play it?

I will ride the stocks that for whatever unknown reason are doing well, like CEF.A.TO – Central Fund of Canada, which has just had a triple top breakout:

or if you prefer a more conventional view of the chart, making the triple top breakout more obvious:

Stocks like Central Fund I hold, or perhaps even increase my holdings.  For the others that are looking weak, I’m not giving up; I’ll simply do covered writing against them to give me some downside protection.

For example, as I tweeted this week, I did covered writes on G.TO – Goldcorp Inc. and SLW.TO – Silver Wheaton Corp. this week, to lock in some gains and to protect against the downside.

Yes, I know, Silver Wheaton has been strong, and will go higher, but after the large run I covered half of my holdings with March options, which expire in about three weeks.  Unless Silver Wheaton goes on a huge run, I will bank some or all of the premiums.  I put in an order to buy back the options I sold at half the price I sold them for, so on a day of weakness I cash out.

That’s the plan, anyway.

So, my question for you: why are some gold stocks doing well, and others doing poorly?  Is it a fluke, and therefore an arbitrage opportunity (ie. buy the weak ones, since they have the best chance to catch up, and sell the strong ones, since they’ve already had their run), or should the weak ones be avoided because they are, well, weak?

I’ll let you decide, either by posting comments here, or over on the Buy High Sell Higher Forum.

Thanks for reading; see you next week.



{ 1 comment… read it below or add one }

rapid1 February 26, 2011 at 8:56 am

I feel as frustrated as you sem to feel ….it is good to be in honest company…bob