Gold Stocks are Tumbling-the Headlines Scream
The Gold Index XAU is down 3% to 138, and ASA and GLD, the proxies for Gold Stocks, are also down about 3% each. There is blood on the Gold Stock Tape.
What gives? Nothing.
The fundamentals of the industry are as sound as ever. Markets don't go up in a straight line-the weaker hands have to be shaken out. The people who bought GLD and ASA and other Gold Funds on margin, they have to be forcibly closed out. Hey, it's all about risk management. If you don't manage your risk well and can't handle a drop in your portfolio of 50% without having margin calls, you shouldn't be in the business. In fact, the business makes sure you aren't; you meet those calls and sell your holdings at steep losses. That money goes into the pockets of those who were prepared for the worst, the risk managers.
The Gold Index is down 10% from it's recent high. For a run like the one it has had in the last few months, this is nothing. In 6 months the stocks have gone up about 60%, and this is just a small drop.
As I have said in previous posts, Gold is overbought at these levels, and needs to consolidate a month of two before going higher. We will monitor the news carefully to see if it does go higher-I am always watching for signs of a top--large number of bullish analysts, or business week and time coming out with Gold Stocks on Cover pages. The standard stuff.
But until then, Gold remains in a bullish trend, and you can use the pullback here to add to your positions, or initiate new ones. Or just sit by the beach somewhere and enjoy the sun.
Sanjay John G.
What gives? Nothing.
The fundamentals of the industry are as sound as ever. Markets don't go up in a straight line-the weaker hands have to be shaken out. The people who bought GLD and ASA and other Gold Funds on margin, they have to be forcibly closed out. Hey, it's all about risk management. If you don't manage your risk well and can't handle a drop in your portfolio of 50% without having margin calls, you shouldn't be in the business. In fact, the business makes sure you aren't; you meet those calls and sell your holdings at steep losses. That money goes into the pockets of those who were prepared for the worst, the risk managers.
The Gold Index is down 10% from it's recent high. For a run like the one it has had in the last few months, this is nothing. In 6 months the stocks have gone up about 60%, and this is just a small drop.
As I have said in previous posts, Gold is overbought at these levels, and needs to consolidate a month of two before going higher. We will monitor the news carefully to see if it does go higher-I am always watching for signs of a top--large number of bullish analysts, or business week and time coming out with Gold Stocks on Cover pages. The standard stuff.
But until then, Gold remains in a bullish trend, and you can use the pullback here to add to your positions, or initiate new ones. Or just sit by the beach somewhere and enjoy the sun.
Sanjay John G.
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