Rick's Picks
Tuesday, March 16, 2004
For investors who'd rather be smart than lucky
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Note to Self: 'Gold Can't Lose'
TRADING NOTE: There were strongly conflicting signals bearing on the precious metals sector as Monday's session drew to a close. On the bullish side, the dollar looked like it was struggling for altitude, evidently weighed down by reports that Japan is considering ending its strenuous dollar-support operations. Gold futures did not leap on the news as we might have expected. But the April COMEX contract did close moderately higher -- sufficiently so to be within a five-iron's distance of 404.20, a "hidden pivot" whose breach today would make 413.40 an odds-on bet, if not a lock. While that wouldn't necessarily end the painful correction begun in early January from $429, it would likely suffice to put the bear on the defensive for the next 2-3 weeks, giving bullion quotes a desperately needed opportunity to breathe.
We must weigh the foregoing, moderately bullish outlook for gold (and by implication, silver) against an absolutely dismal outlook for most of the 20 mining stocks and precious metals indexes that I've analyzed in today's edition of Rick's Picks. I've specified bids below the market in four of them -- Newmont, Barrick, Cameco and Glamis - but none warrants the kind of aggressive buying we've often done in the past. And for good reason: Nearly two-thirds of the forty-odd gold stocks I've been tracking for you have recently broken hidden-pivot supports, implying that their respective downtrends have further to go. How much further? If each of the mining stocks were to reach my worst-case target over the next 2-3 weeks, the average decline remaining for the group would be nearly 15 percent. Unfortunately, the HUI puts are not liquid enough to protect us - at least, not many of us - so the only "cushion" we've got is the relatively low cost at which we acquired most of our positions.
Still Rabidly Bullish
Putting these concerns aside, I must emphasize that my rabidly bullish long-term outlook for the precious metals sector remains undiminished. But given the potential carnage that may await us, thoughts of lightening up on mining shares admittedly crossed my mind. The last time I entertained such notions, though, I bailed out of DROOY near the very bottom. The loss was a pittance - 20 cents per share - but, ex-futures trades, it was the only losing recommendation I've ever made for gold-sector stocks.
To diminish the chances of my making this mistake again, I wrote down the way I felt at the time: "Schmuck! DROOY's price is going to rise a thousand percent before this bull market has run its course. Think about that the next time you feel like bailing out when the stock is getting pasted. And it will be." If you're a Kurt Vonnegut fan, you could call this my "Unk" note. Unk, the hero of Sirens of Titan," finds himself on some strange and bleak planet, with no recollection of who he is or where he comes from. He only know that his name is Unk. He extracts from his pocket a scrap of paper on which is written some of the most lucid, inspiring prose since Jefferson wrote the Declaration of Independence. At the bottom was a signature. "The signature was Unk's. Unk was the hero who had written the letter. Unk had written the letter to himself before having his memory cleaned out. It was literature in its finest sense, since it made Unk courageous, watchful and secretly free. It made him his own hero in very trying times."
Unk's Letter
All investors should carry such a letter in their pockets, to be extracted in times of bewilderment or despair. Such feelings come easily and naturally to those who would rely solely on "facts" and "logic" to guide them in their investment decisions. Gold is in the difficult, adolescent stage of a bull market that will make dot-com mania seem somber in comparison. Remember that the next time mining shares plunge from much higher levels, as they surely will. This is how stocks inhale and exhale. They will be mustering their strength for a leap to heights that few today can imagine.
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www.rickackerman.com
Copyright 2004 by Rick's Picks. All rights reserved. Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary.
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