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GOLD SHARES / such as: GDX, GDXJ, CDNX etc.

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As for me I maintain a core portfolio in the Royalties as I feel this derisks the PM sector as much as one can and the royalties seem to be better positioned than the majors. After the core portfolio

I have been building a portfolio of about 10 -15 exploration silver/ gold/ copper/diamond stocks.

 

Best idea: Virginia Mines. I see this as a core value due to its goldcorp elonore royalty as an Arbitrage with the future value of gold plus the best exploration company in Quebec.

An exploration company with an inner core royalty which derisks the exploration component

Hi Plunger.

 

Yes, I also like Royalty stocks. And have owned many: RGLD, GLW.t, FNV.t, SLW, etc.

 

But I sold down each in turn, as they got too "expensive."

 

I am now attracted to ASA, but I do not own any at the money, and think I will have a chance to buy at $26 or less.

 

Virginia Mines is an idea I will need to examine. If you have a chart, you can post it. Else I will later.

 

Anglo Pacific was a UK-quoted stock that I used to own, which also had a core royalty

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5 year chart of Virginia Mines. Note what I would term an upwardly skewed handle of a classic cup&handle

 

post-3356-0-86559600-1331683258_thumb.gif

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Would like to solicit some advice. As I mentioned my bet idea is Virginia mines since it combines all the elements that I am looking for.

Top quality exploration team that has done it all before, cash on the balance sheet, tight share structure and the only exploration company that

has derisked itself by having the best royalty imbedded in the core of the company. One that will start paying out in 3 years from now.

 

Question: any opinions on the chances of the price action filling this open gap of over one year ago? My bet is yes. What would it take? who knows maybe a general sell off in the PM sector due to a crash, or maybe we are in a cyclical bear in the gold price that topped in September. Or a delay by Gold corp in production of the elonore royalty....who knows

 

Any insights on the likelyhood of this gap filling?

post-3356-0-20335100-1331684251_thumb.png

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Virginia's strength while other Gold stocks are weak suggest that it has the power to get to the gap

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Here is an example of what I am waiting for to eventually happen in VGQ. I wanted to get into Mart (Junior Oil producer in Nigeria) I made a bet that the

price action would fill its gap before it could make a permanent run higher. So I staked out the cash and waited a few months once the pullback started.

 

It worked. Not all gaps have to be filled (orphan gaps), however it is my understanding that 98%+ do get filled. For it not to get filled the stock must be

undergoing a fundemental shift in perception. And I think runaway gaps are more prone to filling than most.

 

post-3356-0-86113100-1331706259_thumb.png

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Using my own system - here's Virginia / VGQ ... update : 6months

 

vgq.png

 

I think you might get a correction or retracement - perhaps a handle -

Before a stronger rally.

 

Maybe you will need to wait for the next Cycle Low

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Index : Support : -Current / LOD

GLD - : $ 160a : $159.86/ $159.47

GDX - : $46-48: $ 50.28 / $ 50.07

GDXJ : $ 22.00: $ 25.36 / $ 25.25

ASA - : $ 25.50: $ 26.35 / $ 26.28

GLDX: $ 10.00: $ 10.46 / $ 10.46

=====

a: GLD-$160 is the nearest Major Support level, next is near $150

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GOLD STOCKS and the "Cliff's Edge Risk"

 

What a dangerous opportunity we are facing at the moment.

I do seem a very interesting similarity today with the pattern of 2006, where the current pattern of Gold prices looks like an identical fractal with 2006. At the same time, I cannot get 2008 out of my mind.

 

If Gold stocks break through the recent lows (on heavy volume) and keep falling, we will have something that looks like the initiation of the 2008 slide.

 

gdxgldspy2007b.gif

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The chart above drove me to look at a ratio:

 

RATIO: GDX-to-SPY

gdxtospy.png

 

Frankly, this chart has broken down... and the Ratio is diving to new lows.

There is no sign yet of a bounce or turnaround.

 

Yes, Gold stocks look cheap, but are they signalling a new bear market for Gold?

 

I like this chart - and it may point me to a good trading idea:

 

GDX vs. SPY - from Jan.2009 ... update

 

gdxvsspy.png

 

GDX and SPY start at the same valuation, and GDX outperforms SPY for the entire period, with GDX never falling below SPY. Just now, in the latest day or so, GDX has fallen back to tough SPY.

 

What next?

If trends continue, then GDX will crossover. That would be equivalent to the GDX-to-SPY Ratio falling below 35%

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HOW TO PLAY IT:

 

BUY Calls : on GDX, GDXJ and other attractive Gold stock

 

BUY Puts- : on SPY (which are cheap now, thanks to low VIX levels

 

==========

Some specifics:

(SPY-$139.91)

SPY Sep-$140p : $ 8.38 - $ 8.46 : $ 8.42 / 6.02%

SPY Sep-$135p : $ 6.46 - $ 6.55 : $ 6.51 / 4.66%

SPY Sep-$130p : $ 5.00 - $ 5.09 : $ 5.05 / 3.61%

 

(GDX - $50.12)

GDX Jun-$45.c : $ 6.35 - $ 6.40 : $6.38 /12.73%

GDX Jun-$50.c : $ 3.15 - $ 3.20 : $3.18 / 6.34%

(Gdxj- $25.13)

May Calls:

Gdxj M$22.63c : $ 3.00 - $ 3.40 : $3.20 /12.73%

Gdxj M$24.63c : $ 1.80 - $ 1.90 : $1.85 / 7.36%

Gdxj M$25.63c : $ 1.35 - $ 1.45 : $1.40 / 5.57%

Aug Calls:

Gdxj M$22.63c : $ 3.90 - $ 4.20 : $4.05 /16.12%

Gdxj M$24.63c : $ 2.75 - $ 2.95 : $2.85 /11.34%

(ASA - $26.31)

ASA May-$25.c : $ 1.65 - $ 2.20 : $1.93 / 7.34%

ASA May-$30.c : $ 0.10 - $ 0.40 : $0.25 / 0.95%

ASA May-$30.p : $ 3.00 - $ 4.40 : $3.70 /14.06%

ASA Aug -$25.c : $ 1.70e- $ 3.40 : $2.55 / 9.69%

 

Here the Composite Trade that I am thinking about:

 

SELL : ASA-May$30p : for +14.06%

BUY- : ASA- Aug$25c : for - 9.69% (or maybe: ??)

BUY- : SPY-Sep$130p : for - 4.66%

=================================

NET- : Cost as a % Face = - 0.29%

 

So, if I did this for US$100,000 Face, I would have:

Paid $ 290 ( 0.29%) out-of-pocket, before commissions

(In Detail):

Sold : 38 May$30 puts on ASA ( 38 x $ 3.70 x 100): +$14,060

BOT- : 38 Aug$25 calls on ASA ( 38 x $ 2.55 x 100): -$ 9,690

BOT- : 7 Sep/$130 puts on SPY ( 07 x $ 6.51 x 100): -$ 4,557 /= $-187

===

$30p-$25c Intrinsic at ASA-$26.25 : $3.75- $1.25 = $2.50 > try $2.00, $1.70

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STOCK INFORMATION - NYSE: ASA

Share Price: 26.236 -0.074 (-0.28%)

 

DATA BASED ON 03/09/2012 CLOSE

NAV $29.64

Share Price $27.52

Premium or (Discount) (7.14)%

 

(MONTH ENDS):

02/29/2012 $30.62 $28.30 ( 7.58)%

01/31/2012 $31.29 $28.86 ( 7.76)%

12/30/2011 $28.48 $26.19 ( 8.05)%

11/30/2011 $32.46 $28.85 (11.11)%

10/31/2011 $32.24 $29.12 ( 9.67)%

09/30/2011 $29.88 $26.99 ( 9.67)%

08/31/2011 $34.84 $31.01 (10.99)%

07/29/2011 $32.75 $29.41 (10.20)%

06/30/2011 $31.82 $28.60 (10.11)%

05/31/2011 $33.75 $30.34 (10.10)%

 

 

/source: http://www.asaltd.com/Tools/NavTicker/frontend/itemlist.asp?reset=1

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This Table needs updating

 

(Old Table)

 

TABLE

Major Gold stocks with Dividends

Symb.: Company-- : $Price ( low -high ) P/E R. : Yield : OffLo

ABX- : BarrickGd : $49.05 (33.65-55.72) 19.28 : 0.98% :+45.8%

AU--- : Anglogold : $44.82 (34.11-52.86) 37.25 : 0.40% :+31.4%

GG--- : Goldcorp. : $42.91 (32.84-48.94) 23.75 : 0.84% :+30.7%

NEM : Newmont : $57.75 (42.80-65.50) 15.20 : 1.04% :+34.9%

Rgld : RoyalGold : $50.43 (41.19-55.22) 91.48 : 0.87% :+22.4%

 

0ther:

ASA- : ASA Corp. : $30.70 (21.76-36.14) 22.72 : 2.08% :+41.1%

AUY- : YamanaGld : $11.89 ($9.16-13.13) 26.39 : 1.01% :+29.8%

CEF- : CentFdCan : $19.27 (12.20-20.90) 04.01 : 0.05% :+57.9%

FNV.t: FrancoNev :C$31.35 (25.37-35.79) 36.57 : 0.96% :+23.6%

GFI--- : Goldfield--- : $17.17 (10.88-18.53) 27.16 : 1.12% :+57.8%

KGC- : KinrossGd : $17.36 (14.84-20.60) 15.89 : 0.58% :+17.0%

GDX- : GoldVectEtf : $56.89 (39.48-64.62) 04.42 : 0.70% :+44.1%

GLD- : SPDRGoldT : 134.12 (102.3-139.5) 34.11 : 0.40% :+31.1%

GDXJ : MkV.JrGld : $36.70 (21.18-44.86) n/a== : 7.98% :+73.3%

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Let's see if my concept proves right on this trade.

 

Provided the channel is real, rather than imaginary, GDX looks to be a good buy ... update

 

gdx.png

 

The oversold RSI (red circles, above) was another indication of a buypoint.

 

The Long Term view using HUI ... update

huiq.png

 

(HUI runs about 9.50-10.00x GDX, and has a longer history)

 

Let's add in GLD - Here's GLD versus HUI ... update

gldvsgdx.png

 

I could have just stepped in and bought GDX at $50 per share ( = 0.30% dividend.)

But I did not do that, I constructed a more complex trade, using options.

 

I SOLD : Jun.$57p at $ 7.60 x 15

...using that money:

I BOT- : Jan.$45c at $ 7.15 x 10

I BOT- : Sep.$45c at $ 8.50 x 05

======

For a Zero Credit

 

If the market moves sideways at $50, then:

 

The Puts I sold will cost me : $7.00 per share, and the Calls will make me $5.00 per share.

So I will lose $2.00 x 15 contracts = $3,000.

 

Why did I do this when I could simply buy GDX at $50?

 

(answer coming)

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Below is a CLOSE-UP on those prior lows

 

gldvsgdxj2.png

 

Note how: GDX & GDXJ bottom a day or so BEFORE GLD !

 

No.1 : Note the GAP (& wide bar) in GLD before the low

gldgdxj1.png

No.2 : Another wide red bar in GLD, prior the low

gldgdxj2.png

No.3 : Another wide red bar in GLD in late Dec.

gldgdxj3.png

 

THE BIGGEST CLUE is in the behaviour of GDXJ ... 3mos-updates

 

gdxjgdxj3.png

 

First, look at the late Dec.2011 low :

+ Notice how both GLD and GDXJ made wide-ranging red Bars down on xx Dec.

+ The next day, both opened lower, but GDXJ climbed closing at XX, up XX (xx%) on the day.

+ Meanwhile, GLD was up only XX (xx%) the same day. That marked and

+ That difference marked an important Low in the Gold price. By late Feb., the price closed at $xx, up XX from the Low close on XX Dec. 2011.

+

 

Then, look at the current Low (being made):

+ GDX is back testing its late 2011 lows, just below GDX-$50

+ But GDXJ is now $XX versus the late Dec. Low of $XX, and also GLD is near $160, versus Dec. Low of XX - These are Non-confirmations of the new Low in GDX

+ What is needed now is strong upwards jump in GDXJ

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The level is CRITICAL for a move in either direction.

 

Here's the Historical chart that Worries Me !

 

cdnx.png

 

CDNX is the Canadian Venture Index - tracking Junior co's in Canada

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THE BIGGEST CLUE is in the behaviour of GDXJ ...

 

These are Non-confirmations of the new Low in GDX

 

GDXJ maybe outperforming because of the [relatively] high component of Silver miners. SIL - Silver miners etf - is outperforming also, wheras GLDX - Gold explorers is mirroring GDX

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GDXJ maybe outperforming because of the [relatively] high component of Silver miners. SIL - Silver miners etf - is outperforming also, wheras GLDX - Gold explorers is mirroring GDX

That's possible, but I think it is an important non-confirmation to the Lows in GDX - see above.

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That's possible, but I think it is an important non-confirmation to the Lows in GDX - see above.

 

Some gold miners in GDX eg AZK, BNV, GSS were up Friday on very large volume [ABX looks significant too] - think this strengthens your case.

 

I am avoiding GDX in case Silver miners start to tank, but placed a few bids at or below the close for some of those GDX GOLD miners that were weaker on Friday eg NEM.

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In case you are shopping, here are some indicatice

CALLS / with GLD at $161.30:

 

Strike : --Apr- : -May- : -June- : -Sep- : -Jan13

$155 c : $7.58 : $8.48 : $9.78 : 12.28 : 15.92

$160 c : $4.10 : $5.25 : $6.72 : $9.48 : 12.30

$165 c : $1.80 : $3.02 : $4.48 : $7.22 : 10.10

$170 c : ==== : ===== : $2.88 : $5.42 : $8.20

$175 c : ==== : ===== : $1.88 : $4.10 : $6.65

 

$160/170 spread is about $4, to make $10.00 - 2.5 Bagger

$165/175 spread is about $3.25, to make $10 - 3.0 Bagger

 

June $165/175 spread is about $2.60, to make $10 - almost a 4.0 Bagger !

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$160/170 spread is about $4, to make $10.00 - 2.5 Bagger

$165/175 spread is about $3.25, to make $10 - 3.0 Bagger

 

June $165/175 spread is about $2.60, to make $10 - almost a 4.0 Bagger !

 

It's crazy! I still don't manage to understand what dynamic would allow that to happen. Unlike nature, finance doesn't seem to abhor a vacuum ;)

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I am buying a Bull Spread

 

My investment, for example is $12,000, as follows:

 

JUNE 2012 options:

GLD-$165 calls: at $3.90 x 50 = $19,500 - Bought

GLD-$175 calls: at $1.50 x 50 = $07,500 + Sold

=====================

Bull Spread: +$165c - $175c == $12,000

 

If GLD is $175 or higher, is worth: $50,000

 

GLD-$175 = Gold price of about $1,800

 

Why do anything else?

To make a $38,000 profit at $1,800 buying Gold, with Gold at $1650

would require me to invest: $38,000 / $150 = 253 Oz.

 

$1650 x 253 Oz. = $417,450 (instead of $12,000)

 

I don't want to take that much risk.

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I am buying a Bull Spread

 

My investment, for example is $12,000, as follows:

 

JUNE 2012 options:

GLD-$165 calls: at $3.90 x 50 = $19,500 - Bought

GLD-$175 calls: at $1.50 x 50 = $07,500 + Sold

=====================

Bull Spread: +$165c - $175c == $12,000

 

If GLD is $175 or higher, is worth: $50,000

 

GLD-$175 = Gold price of about $1,800

 

Why do anything else?

To make a $38,000 profit at $1,800 buying Gold, with Gold at $1650

would require me to invest: $38,000 / $150 = 253 Oz.

 

$1650 x 253 Oz. = $417,450 (instead of $12,000)

 

I don't want to take that much risk.

 

 

 

 

How much risk are you takeing then mate? How much do you stand to lose ? Am i right in thinking that its $12000 ?

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How much risk are you takeing then mate? How much do you stand to lose ? Am i right in thinking that its $12000 ?

Yes.

I paid a Net Amount of $12,000, and will lose all of it if GLD is below $165 (about Gold-$1700) in Mid-June.

If GLD is above $165, then it is worth something. The higher the price, the more the Bull Spread is worth,

but it is capped at $10 (ie. $50,000.)

 

I have done these types of trades 3 times before, and each time I got the $10 gain.

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I bought GDXJ on the day of the low in December, at $24.

 

I bought a chunk of GDXJ today

 

 

Not looking so good now, has been down to $24.15 today, currently $24.70. Maybe it's the oil price that's putting people off these miners, as well as the weakness in gold...

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I bought GDXJ on the day of the low in December, at $24.

 

 

Not looking so good now, has been down to $24.15 today, currently $24.70. Maybe it's the oil price that's putting people off these miners, as well as the weakness in gold...

I've always steered clear of miners due to my deflationary bias. Mind you... if you want to trade the volatility... but then there's always silver for that.

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