Today at 12:10pm EST, our gold stock indicator signaled that gold stocks were reasonably undervalued. This indication occurred just after the price of gold started a sharp rise in price today and just before gold stocks started to jump, as indicated in the intraday chart below:
As indicated in our Transaction Alert today (April 10, 2012), we bought Newmont Mining (NEM) as a “long term” holding in gold stocks. Our view of the long term is predicated on the percentage gain that is achieved and the alternative stocks that appear undervalued at the time. If the gain has been exceptional in a reasonable period of time and there are better values elsewhere then we may jump ship.
Despite our confidence in the Gold Stock Indicator, we believe that it is necessary to have reasonable expectations for any of the stocks suggested. This means carefully examine the downside risk. As an example, it took Agnico-Eagle (AEM) a little over 1 year to achieve +174%. In that time, AEM traded in a narrow range for a majority of the time and fell almost -30% before reaching such astronomical heights.
Our purchase of the Direxion Daily Gold Miners Bull 3X Shares (NUGT) is strictly a speculation which we will sell soon after it has achieved a gain of +7.5%. Our examination of 3x gold ETFs (DUST and NUGT) is that a gain of +7.5% is achieved 85% of the time, based on 80 transactions initiated by our Gold Stock Indicator since 1983. Direxion’s DUST and NUGT ETFs are strictly for speculators (short-term) and should not be entered into for investment (long-term) purposes. You have been warned.
Our last Gold Stock Indicator signal can be found here: Gold Stock Indicator Points Down