My Predictions about Gold

I received
some great emails from readers yesterday – notably a message from Mark
I. who
suggested buying puts as a way to profit from the tendency for the
United
States Natural Gas Fund (NYSE: UNG) to do nothing but lose money.

(For those readers
unfamiliar with options, a put is a type of option that, to put it
simply, goes
up in value as the underlying asset decreases in value.)

It’s hard to argue with
a
strategy that could have yielded greater than 100% percent gains, month
after
month for the past year. I’m not
exaggerating either. Options prices can
surge by multiples as they approach the strike price.

Take a look at this
table
showing put prices for July expiration on UNG.

A New Look at Bakken Oil

As the world watches the dreadful scenes coming from the BP oil
spill, the blame game ratchets up and now it’s reported that over 100
lawsuits have been filed in relation to the spill. Tough times for BP,
Transocean, and Halliburton.

Given all the attention to the Gulf Coast scant attention is being
paid to one of the fastest growing oil regions in the nation. I’m sure
you’ve heard of it. It’s called the Bakken. It’s a region in the upper
Midwest of the U.S. and lower Canadian Plains. Unlike much of the
continental oil development fields that rely on extracting oil from sand
and shale deposits, the Bakken produces light sweet crude: the
preference of most oil refiners.

A Bold Prediction

On Monday, when it was apparent that we were in for a big day as futures went limit up in pre-market, I said I wanted to see a candlestick pattern called “three white soldiers.”  

 

Three white soldiers basically means three pretty good sized up days in a row. This pattern is considered very bullish, especially after a period of consolidation. And the reason it’s bullish is fairly easy to deduce. 

 

A period of consolidation for a stock means that not much is changing. The buyers and sellers are pretty much in agreement as to what it’s worth. And so the price doesn’t change much. 

How Much for the Island?

Investing in gold is often called a “fear trade.” In times of crisis, it’s believed that gold will hold its value, and even rise, while the value of paper currencies and other assets fall.  

 

If you bought SPDR Gold ETF (NYSE:GLD), which seeks to track the price of physical gold, 2 years ago, you’d be up around 36%.   

 

The S&P 500 is down around 15% during that time.   

 

You probably already know that gold hit a new all-time high yesterday at $1,200 an ounce. And even though other traditional measures of fear – like the volatility index (VIX), bonds and even stocks – didn’t move much today, the move in gold can’t be ignored.  

Ignore Gold: Here

As I said yesterday, I
don’t
like telling you to buy something when it’s at or above its nominal
highs. So, I won’t. With gold now selling for
over $1235 an ounce – above its all time
previous highs of $1224, there’s no reason to ring the bell right now. If you were among the lucky few to buy gold
and gold stocks in the past, then I wouldn’t sell either – but I
wouldn’t
advise building or adding to a position in gold right this hot second.

By the way, I’d like to
hear
from you – where do you think gold is headed? What
percentage of your portfolio is in gold? Drop me a line at
editorial@resourceprospector.com

I believe gold will
likely
move higher, but buying at the highest highs in hopes that it will
immediately move
higher is just not good investment sense.

Instead, I’d like to
draw
your attention to a commodity that’s not making headlines today. It’s
not on CNBC, or gracing the front page
of the Wall Street Journal. Once a story
is well-covered by the mainstream media, it’s not really my job,
or in your best interest, for me to continue shining
a light
on it.

Why Gold Keeps Rising

I hesitate to
write about gold
in today’s article. If you’ve been a
reader of Resource Prospector for more
than a few days, you’re probably
already sick of hearing about it. And if
you haven’t built a position in it, you probably feel like it’s too late
to
start now.

And with
gold near its all time nominal highs (it still has a way to go for
inflation
adjusted highs) you’d think I’d be cheering. But I’m reluctant to tell you to buy things when they’re at any
high. That’s not the way to build a
position in any investment. So before I
go on to talk about gold and why I think it’s so neat, let me recommend
waiting
for a dip before you pull the trigger. A
dip could be a minor hesitation in gold’s price, or it could be a major
decline
– but basically, the idea is to try to buy the asset for less than what
it was
going for yesterday.

Don’t get me
wrong, I’m
still super bullish on gold. What’s not
to like about it? It’s the perfect way
to protect your nest-egg from irresponsible politicians and central
bankers. So long as the Federal Reserve is
backstopping the EU, and the EU tries to fix its currency problems by
blaming
speculators and telling Greece
to raise their sales tax to 23%… Well,
you get the idea.

Liquidity and a No-Bid Market

Apparently, the going rate for a 404 point rally on the Dow Industrials is $1 trillion. Any takers? Going once… 

After stocks lost $1 trillion during that surreal 2 minute stretch last Wednesday, it’s nice to get that market-cap back. But there is still work to do. 

Yesterday’s rally took the S&P 500 within range to challenge resistance at 1,165. It will be important for the S&P 500 to move above this level today.

Financial Darwinism

As Germany voted to approve bailout money for Greece, German Left Party lawmaker Gesine Loetzsch was quoted as saying "Speculators are Taliban in pinstripes, and people in our country must be protected from these Taliban…”  

 

It’s scary to me that any political leader could voice such an inflammatory and downright naïve opinion.   

 

If a hitter in baseball can’t hit the high fastball, then that’s exactly what he will see until he makes an adjustment. When Yahoo! failed to take advantage of its early-mover status on the Internet to implement a viable paid advertising model, it opened the door to Google.   

What My Barber Knows About Oil Stocks

There’s nothing
like a
haircut to make you feel better about yourself. I was long overdue for one until this past weekend. When my hair gets too long I can always brush
it back or mat it down, but there comes a day when I say enough – it’s
time. For me, the motivating factors were
a few sideways looks and subtle hints from my wife.

I’m not
the only one to get a haircut this past week. The first week of May proved disastrous for oil prices, and by
direct
correlation, oil stocks. The motivating
factor was a lack of price support. I’ll describe this in detail in a
moment.

The largest
index of oil
companies, called the NYSE Arca oil index (AMEX:
XOI
), fell nearly 10% last week. This index tracks the 13 largest oil companies in the production,
exploration and development sectors.

Greek Tragedy

Just yesterday, we discussed how stock market plunges can be set off by what amounts to a “global margin call.” And that’s exactly what yesterday’s decline felt like, as the selling was relentless.  

 

There were no bounces, no dead-cat rallies as the selling built pressure built until it reached its crescendo.   

 

That crescendo, a 998-point spike lower on the Dow Industrials, was caused directly by some computer-based trading programs gone haywire. (There’s no other way to explain how Accenture (NYSE:ANC) could drop from $40 a share to a penny.)