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Buying Some Gold Stocks (04/01/08)

Submitted by Mike Swanson on Tue, 2008-04-01 14:02.

I'm buying some gold stocks this afternoon. As you can see from the chart below the HUI broke through its low of March and dipped down to the 420 level. It briefly fell below its 150-day moving average at 423 and bounced. The GDX and XAU look identical. I consider this moving average to be strong support for gold stocks. I'm looking for the HUI to rally to the 470 level in the next week and half and then go sideways for a week or two before making its next move.



One big positive today is that gold broke through $900 an ounce and fell down to about 820 while the gold stocks for the most part held above their March lows. As you can see the relative strength HUI/gld ratio has actually be strengthening during the past week and rose today during this dip in gold. The gold stocks are outperforming the metal and since the stocks tend to lead the metal this is a big positive.

I bought position in GDX, EGO, AZK, KGC, AUY and AAB and CSM, which are today small cap Canadian stocks trading on the Toronto stock exchange, I'll explain them in more detail later. CSM also trades on the Amex under the symbol SMC. I consider today's lows as mental stop loss points on the XAU and HUI.

Aberdeen did a conference call a few days ago that explains their business model:

Click for conference call.

I'm about 60% invested in gold stocks with these positions. I had a 70% short position in the TLT bond ETF. I'm covering that and taking profits to reduce my overall portfolio exposure. So in effect rotating money out of the bond short and into gold stocks.

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