Gold: Correction, or End of the Ride?

by JDH on September 10, 2016

Let’s look at the evidence, using NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS as the proxy for gold (because it’s a 3x leveraged ETF, so it has more volatility than gold shares, or gold).

nugt-1week-sept9-2016

The week started out good.  After an intra-day low below $21 on Monday, NUGT gapped open up on Tuesday, and touched $25.  Great.  Well, good, because unfortunately for me I accumulated my position at $25.58, so I was still down, but not down as much as I was last week.

Wednesday was volatile, but closed about where it opened, so no big deal.

Thursday and Friday, no so pretty, with the general market weaknesses killing everything, culminating with a 16% drop to close the week at $19.33.  For those of you that are math challenged, that’s a lot lower than $25.

I attempted to salvage the situation by picking up a few more shares to lower my average cost to $25.35, but, needless to say, I am under water.  Am I drowning?

No, I’m not doing this on margin, so I can wait forever if required.  A better question is what’s next?

nugt-sept9-2016-6months

The six month chart of NUGT is not particularly pretty either, because the uptrend line through the lows in April and June was breached in late August.  The next obvious test will be the low below $18 at the start of the month.  If that doesn’t hold, $14 is the next stop.

Perhaps I should be worried, but I’m not.

I believe that we are in the early stages of a long term bull market for gold, and pullbacks like we have witnessed this month are just part of the game.  If you jump out of the boat at the first sign of trouble, you drown.  I’m not jumping.

Perhaps I should be, but I’m not.

One reason I’m not is the year to date chart.

nugt-ytd-sept-9-2016

With a longer perspective you can see a series of higher lows (the red lines) and a series of higher highs (the blue lines).  That’s good because that means NUGT is going up.

And yes, I realize that you can draw lines however you want, and you only know if you have done it correctly in hindsight.  It could be that the peak at $25 earlier this week was a top, and NUGT may be trading at $14 next week.  I don’t know.

I don’t know the future.

But my best guess is that we are in the early stages of a bull market in gold, so I expect substantially higher prices.  Perhaps not tomorrow, or next week, or even next month, but in a few months, and years, gold will be substantially higher.

I’m not selling.

Alterra Power

In other news, Alterra Power Corp. has consolidated their stock 10 for 1, announced a dividend, and National Bank raised their target on the stock to $8.50.  This is great news, and explains why, on a day when the stock market was down, Alterra was actually up.  Stay the course.

Thanks for reading.  I’m working on another recommendation; stay tuned.