Gold Legend Rick Rule: Time to Go Shopping for Gold Stocks!
Now, here’s a little surprise. Gold fell 2% in the last trading session over in the US. It can’t break back above US$1,900.
It looks like we might be in for a period of consolidation on the gold front in the short term.
The Aussie gold price has been rangebound around $2,500–2,600 since about July now.
What’s interesting is that gold stocks are suffering worse than the price currently.
That $2,500 price means gold, in Aussie dollars, hasn’t risen for a few months, but it hasn’t really gone down a great deal either.
And yet gold stocks are materially weaker than at the height of the gold trade back in July/August.
We can put a big part of this down to expectations. The more aggressive gold bulls were expecting AU$3,000 an ounce by now.
The valuations on gold stocks are getting a lot better for buyers now.
They were over the top a while back. I remember taking a look at an exciting gold explorer a few months ago.
The boom had driven its market cap over $100 million, when it had no revenue and one project in the very early stage.
I liked the project but there’s a limit to what you can pay before the reward versus risk shrinks to zero.
I still like gold in the long term. But I haven’t bought any gold stocks in this dip yet.
The way of markets is these can go on longer than most of us generally think is going to happen.
Good Time to Look for ASX Gold Stocks
However, this is a very opportune time to go over gold projects without the headache of rising prices pressuring you to rush in.
Our resident gold hand, Shae Russell, recently interviewed the commodity expert Rick Rule.
He captured the sentiment of what I’m talking about perfectly…
‘If you think about a volatile asset superimposed on a volatile asset, you get some sense of the turbulence that you’re going to experience in the junior market.
‘Now, investors who don’t want volatility or speculators, who don’t have confidence in their position, particularly hate volatility because they like affirmation from the market prices of their assets.
‘In my particular case, where I have a 45-stock focus list and a 15-stock buy list, volatility could be extremely useful to me if I’ve already done the research on something. But I don’t like the price. I’d like to see it a little cheaper.
‘Three or four times a year the market seems to accommodate me. And I guess the difference between me and some people is that makes me happy because I have the courage of my convictions. And in their case, it makes them sad because they don’t.’
Generally, I have found this to be true with every type of stock, and not just gold ones. I don’t bother trading or investing if I haven’t done my homework.
There was a good quote on Twitter about this recently, actually. Somebody said ‘you can take someone else’s idea but you can’t take their conviction’.
It’s the conviction that allows you to take a big or aggressive entry when an opportunity presents.
It’s also what allows you to hold through a market sell down. And it’s also strong knowledge of a stock that helps you know when to sell.
This is where pure technical analysis (TA) falls down, in my opinion. A chart can only tell you so much.
I’m happy to incorporate some TA concepts into my trading. But I always make sure I’ve done background work on the stock too. It’s when they come together that I get excited.
One thing that might suppress gold stocks is that high speculative interest has been knocked out of it for the moment. That won’t rush back in unless the price surges in a big way.
This is where you need to be clear about your time frame and strategy.
My fellow Daily Reckoning editor Shae, generally speaking, takes the patient approach to high quality projects. You can generate some huge returns this way. Even with gold stocks selling off, one of her picks is still up 385%.
Of course, not all of her picks have performed like this. And it goes without saying that gold stocks can be highly risky.
Editor, The Daily Reckoning Australia
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