I Missed Most, But Not All, of This Week’s Run Up in Gold

by JDH on July 9, 2016

Last week I reported that I Totally Missed This Week’s Run-Up in Gold.  I was waiting for a lower price, and it didn’t occur.  Gold just kept on going up.  There was no entry point.  Let me explain.

In my core portfolio, I have a bunch of gold stocks, including some speculative juniors:

  • ATAC Resources Ltd (ATC.V)
  • Balmoral Resources Ltd. (BAR.TO)
  • Brazil Resources Inc. (BRI.V) (my biggest winner of the year, currently up about 475%)
  • Integra Gold Corp (ICG.V)
  • Kirkland Lake Gold Inc. (KGI.TO)
  • Northern Dynasty Minerals (NDM.TO)
  • Premier Gold Mines Ltd. (PG.V)
  • Pretium Resources Inc. (PVG.V)

I also have senior producers:

I have a few other stocks that I’ll discuss in the future.

On the U.S. side, I have two stocks:

A quick review of these securities will show that they are all up for the year, so that’s great.  My strategy is simple:

Other than NUGT, I buy the stocks and I hold them.  I believe we are in the early stages of a multi-year gold bull market, so I don’t worry about up days and down days.  It doesn’t matter.  I buy and hold.  As a result, that portion of my portfolio is up substantially this year.  That’s good.

The only nuance is that for shares where I have a double, meaning a gain of over 100%, I will often sell up to half of my shares to recoup my original investment, so I can’t lose.  I’ve done that this year with Brazil Resources and Integra Gold Corp.  Is that a good strategy?  I think it is because it minimizes risk, but since both of those shares have continued to increase since I sold them I could have held for even greater gains.

I didn’t, because my goal is not to earn the absolute maximum I can.

My goal is to earn a big profit while also managing risk.  So, if I have a double, I take some money off the table.

NUGT-July8-2016-1week

Which brings us back to NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, a 3 times leveraged security.  It goes up big, and goes down big.  That’s leverage.

It started the week as low as $137, and closed in on $170 three times on Wednesday, and got close again on Friday.  But here’s the thing: over the last three months it’s traded as low as $70.

So, when I see it trading at $140, I think “wow, that’s twice as high as it was in the third week of May, that’s high” and I am reluctant to buy it.  I prefer to buy at the low end, not the high end.

But we are now in an explosive bull market, so waiting for the low end may not happen.

So, on Thursday, the first down day of the week, I took the plunge and started buying, and got in at around $154.  On Friday, happy with the gains, I sold at $164.  It closed the day at $166, so I left something on the table.

But that’s fine.  Making $10 in a day is fine.  I don’t need to pick the exact high and low to make money.  Close is good enough.

It’s possible that the new base is around $150, or perhaps $140, so here’s the plan:

I will put in buy orders starting at $160 and working my way down.  I don’t buy 100% of my expected position at once.  I’ll probably set bids approximately as follows:

  • 10% of my full allocation at $160
  • 30% at $150
  • 30% at $140
  • 20% at $120
  • 10% at $100

If I get filled at $160 and it keeps going up, I guess I make money on 10% of my cash.  So be it.

If I start buying at $160 and it keeps falling, I keep buying, averaging down.  When it turns back upward, I sell.

This strategy only works with a volatile stock in a bull market.  I expect that gold will be higher in the near future than it is today, so averaging down makes sense.

Of course if the world collapses on the weekend and gold goes to the moon, I’ll be sad that I owned no NUGT.  But my portfolio of gold stocks will continue to increase, so I’m covered either way.

My point is that I will have to increase my buy points, because I don’t think I’ll see $70 on NUGT for a while.

That’s the plan.  Tune in next week to see how it worked out.