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Portfolio Optimization-Trading Gold Stocks

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PostPosted: Sat Aug 21, 2004 6:24 am    Post subject: Portfolio Optimization-Trading Gold Stocks Reply with quote

Trading Gold Stocks:


Silver Stocks: SIL HL PAAS CDE

Copper and Other: FCX SWE BHP PAL

Gold peaked at $850 and silver at $50 in Jan 1980, and then started a bear market, which ended in late 2000 when gold fell to $253. Gold and silver then started a bull market, in late 2000, rising to $430 in Jan 2004. Over the first half of 2004, gold fell to $375 during a correction. Currently, there may be consolidation with resistance at $430 before the bull market resumes. Gold and silver are pure commodities. Consequently, trading gold and silver stocks are similar to trading gold and silver prices (unless there are firm specific news affecting a particular stock). Therefore, arbitrage can be used to maximize return and minimize risk.

Recently, I bought GFI calls, because GFI was relatively undervalued compared to other gold stocks. However, GFI became even more relatively undervalued and stayed undervalued for several weeks. Nonetheless, GFI eventually rallied over 25% outperforming most other gold stocks. However, I sold the GFI calls too soon. Nonetheless, after I sold the GFI calls, I bought calls on AU another undervalued gold stock, which rose three points to 34 quickly (although I sold on a one point bounce, since the calls went way up). I then bought BGO stock below 2.20, it fell to 2.00, and then rallied to 2.70 within a week. After I sold BGO, I bought KGC, which rallied from 5.05 to 5.70, and then planned to buy ABX. However, ABX rallied sharply for two days and I missed that buying opportunity. DROOY late last week was relatively undervalued compared to other gold stocks. So, I bought DROOY at 1.90 on Thu, sold at 2.00 on Fri, and bought back at 1.88 that same day, on Fri.

NEM is currently near 45. So, I may buy NEM puts and keep the DROOY stock unless DROOY rises to 1.98 or higher. NEM is the gold leader. So, by watching NEM, along with the gold price, it can be determine if other gold stocks will rise or fall (XAU gold index has no volume, and NEM provides indications on volume). So, by comparing the prices of gold stocks, arbitrage opportunities exist to take advantage of undervalued or overvalued stocks. Also, I may add, the Gold to Oil Ratio is at its lowest level since 1920. Consequently, gold will need to rise or oil will need to fall.
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