Time To Start Raising Cash?

by JDH on April 16, 2011

This will be the second week in a row where I repeat what I said two weeks ago, namely that Diversification is over-rated, and at times diversification is stupid and that Silver Is Better Than Gold. Fortunately I will also say something original as well.

First, nice run in gold and silver this week, eh? By “nice run” I mean “new all time highs” in both metals. (Yes, I know, silver is not at an all time nominal dollar high, and neither metal is anywhere near an all time inflation adjusted high, but still, if you look back on the last 20 years, these are historically high prices).

Here’s the silver picture (click to enlarge):

$42.86 looks pretty good, eh? Of course the RSI is at 81.66, so it’s solidly into oversold territory, so a pullback to the uptrend line around $40, or down to the 50 day moving average at $35.36 would not be surprising. In fact, it would probably be healthy.

The gold picture looks even better:

Gold’s break out (the vertical brown line) really only happened in the last two weeks, and it is nowhere near as oversold as silver is. So what does all this mean?

My guess is that silver’s massive upward ride is due for a pause, and gold’s somewhat laggardly performance is due for a pick up. Silver has outperformed gold for many months, but as silver gets oversold, the time will come for a breather. That time may be now. So, for that reason, I believe it’s time to start taking profits.

In addition, let’s not forget about the historical Sell in May and Go Away philosophy, that works more often than not. As we approach the end of April, moving to cash is not a bad idea. With that said, here’s my plan:

I am placing numerous sell orders, at various levels. As the prices increase, I will be selling. Here’s the chart:

Stock 1st sale 2nd sale 3rd sale 4th sale
Sale Percentage:
AEM.TO – Agnico-Eagle Mines Ltd.
CMK.TO – Cline Mining Corporation
FR.TO – First Majestic Silver Corp.
G.TO – Goldcorp Inc.
K.TO – Kinross Gold Corp.
SVM.TO – Silvercorp Metals Inc.
SLW.TO – Silver Wheaton Corp.

So, for example, for AEM.TO – Agnico-Eagle Mines Ltd., which closed on Friday at $62.72, if I own 1,000 shares, I will put in sell orders for 200 shares at $63.50, 200 shares at $64, 200 shares at $64.50, and 200 shares at $65. As the price increases, I will sell more shares. If the price doesn’t increase, I hold. Last Monday Agnico-Eagle did trade over $63.60, so if I had had these orders in last week, I would have sold 20% of my holdings.

Of course it’s not possible to sell exactly 20% of your holdings, unless you hold a nice round number of shares. When I place these orders I will play with the numbers, so the first tranche may only be 15%, and the final tranche may be larger.

The point is that my goal, over the next few weeks, is to liquidate 20% x 4 or 80% of my holdings.

Yes, I can hear you all asking to yourself, “JDH, what are you thinking? You’ve been spouting off for weeks how gold and silver will be going up, and now that they are you are selling?”


Why? Because nothing goes up in a straight line. I have profits, and I want to take them.

For example, my cost base on my shares in CMK.TO – Cline Mining Corporation is $2.16 per share. Cline closed on Friday at $3.64. There is more upside, but I’m sitting on a profit, and I would like to convert some of that profit to cash, which I can redeploy if there is a summer slide.

Note that I am not selling everything. I will sell up to 80% of my holdings, but only if I get the price I want. Even if I do get the price I want, I will still have 20% of my shares as a long term position. If I don’t get the price I want, I hold.

Also note the absence of two stocks that are NOT on the above list: PHS.U.TO – Sprott Physical Silver Trust and CEF.A.TO – Central Fund of Canada. These are physical metal holdings, not shares in companies. They are a core holding in the portfolio, and I don’t plan to trade them; I plan to let them sit as long term holds. I have some other junior shares that I will probably hold as well.

So, even if prices take off in the coming weeks, I will not get down to 80% cash; my goal is somewhere in the 50% to 60% cash range going in to the summer, with the hopes that I can redeploy the cash if there is a correction. If there isn’t a correction, I’m sitting on cash, and profits, which is a safe approach.

That’s the plan; we shall see how it unfolds over the coming weeks.

NOTE: If you want some “food for thought”, be sure to read the Martin Armstrong discussion over on the Buy High Sell Higher Forum.

Thanks for reading, and see you next week.