League Table Q1, 2010: USD, DJIA, GOLD, SILVER, GDXJ and the HUI
The first quarter of 2010 is now past us so we thought we would take a quick look at the League Table of the major elements of the investment community, that capture our interest, as per the above chart.
As we can see the villains, the US Dollar and Dow Jones Industrial Average occupy the first and second place respectively. Silver prices and gold prices would appear to share third place, in fourth we have the GDXJ, the Market Vectors Junior Gold Miners ETF, NYSE and propping up the table comes the HUI, the gold bugs index, occupying the last spot.
In terms of performance the cast in order of appearance is as follows;
1.The US Dollar
The recent strength of the US Dollar appears to be an inverse reaction to the Euro which is being weighed down with the financial plight of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) and it wont be too long before the UK comes into focus, once the general election is behind them.
In second place the Dow Jones Industrial Average is hanging in there just below the 1100 level, can it continue to gain ground or is a sell off on the cards? If and when it pops above 1100 we will need to do some work in order to assess just what is holding it up there.
Joint third we have silver and gold which appear to be in the consolidation mode for now and this state could exist for some time to come.
In fifth place we have the GDXJ, the Market Vectors Junior Gold Miners ETF, NYSE, we thought that we would include this index as the mantra of juniors, juniors, is becoming more prevalent, so we need to keep an eye on this sector of the market. As it stands we are of the opinion that it isn't the time for the juniors stocks and we are still not sold on the idea that they will be the stars of this precious metals bull market. However, we must not let our current bias blind us to a possible gem of a stock should we discover one.
At the bottom, much to our disappointment, we have the HUI, the gold bugs index, clocking in with a loss of around 10%. The flight to safety has to some extent reached the precious metals sector, but the associated stocks still do not reflect a leveraged return when considering the additional risks that are involved in any mining operation. We can also see that investors still have some preference to be in a currency rather than in a metal as it moves from dollars to Euros and back again. This is positive for silver and gold prices as sooner or later we believe that paper will be recognized for it is, an IOU for an identical IOU, with nothing tangible behind it.
Now, should we get another northern hemisphere summer of the 'summer doldrums' kind we should treat this period as an opportunity to increase our exposure to to both silver and gold. Acquire the metals first and then select a vehicle, stocks, funds, options, etc, that suits you for gaining more exposure to the best performing asset class of the last decade.
As a suggestion for those who do want leverage to the precious metals bull, the gold and silver funds together with the careful application of options trades could be a possible solution for you. This way we are exposed to any movement in gold prices which in turn is magnified by the effect of the option. Do remember that loses are also magnified in the same way so its not a strategy for the faint hearted. On the other hand the quality stocks are not performing as anticipated and a non-producing junior stock is a shot in the dark, however, its your money and its your call.
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