Thursday, November 09, 2006

Gold breaking out

On Oct. 25, I noted the positive price action in gold which consisted of a sharp 1-day sell-off and a quick recovery. At the time, gold was trading in the low $590's and the HUI was at 316. Since then gold climbed to $620's and HUI has consolidated in the high 320's where several retracement levels congregated.

We are seeing similar actions today, where gold is up ~$16 now after easing over $8 yesterday. Concurrently, HUI has gained over 3% to 338+. The minor drawback I can see is that the PM stocks are in overbought territory. A prudent plan for gaining PM exposure anew may be to take some position now and the rest upon a pull back to the low 330's.

One way to capture the upside in the miners while circumventing individual company risk is through GDX, the Market Vectors Gold Miner ETF. Over its short life, it has a very high correlation to the HUI index.

PMs are extremely volatile, so please be sure to do you due dilligence and adhere to a strict allocation and stop-loss discipline.

This article was first published on 1stmillionat33 at 12:30 pm EST today.