What's With The Precious Metals?

Gold is doing better today as you can see in the green pattern on the www.Kitco.com graph, above. It seems certain that the price is moving to establish a range within which it will trade for some time. There are likely to be several attempts to break out of the range, mostly top side. This will be a time of consolidation before the next strong upward move. While the precious were oversold last week, it will be a time before we see $1,000 gold again.

The $1,000 price for gold has been established as a strong resistance level. Thus, as investors see this price being reached again, fear will develop and many will be encouraged to sell the gold and silver portions of their portfolio. Most have been burned once by the move to that level and most will attempt to avoid a second burning. That is why I suggested stops along the way for the mining stocks. I believe that is a good idea and have implemented trailing stops on a large portion of my portfolio to avoid substantial loss. Realize these are not perfect in all cases, but do provide a good deal of protection.

The trading range that gold is working toward seems to be somewhere between $910 and $930, but we will have to wait to see what the market has in mind. Any buying at this time for mining stocks should be done with caution and in small bits when you see that the price is right. It is likely a better time to sit aside and wait for the range to be firmly in place. Then it would be safer to add to your portfolio at the low side of the range from time to time. At times in markets, it is best to do nothing. Simply sit aside and observe market action.

If you have the margin account necessary for trading in options and the risk tolerance for such, options offer a great way to trade on securities in a trading range. Buying calls on the stocks at the bottom of the trading range and selling as the prices near the top. Of course, there is always the possibility that you will feel locked out should the price break out of the top of the range after you have sold. That has happened to me several times, but the trading, given you have a stomach for it, can be very profitable. Beware, there is always the opportunity that you will lose.

It is early in the day and the DJI are down about 60 points. Gold is 929.50 and silver 17.39. I still tend to favor silver over the long haul.

Study the markets well, plan you strategy well, prayerfully put your plans in the hands of God, move out, and depend upon Him to give you the results. He is absolutely in control of all.

Best, Doug