Wednesday, May 30, 2012

BUY NUGT $8.80 GSS $1.06 - Gold/Dollar

Two more days of school left - HOORAY!!! 

A couple weeks ago I bought a slug of Direxion Gold Miners Bull 3X ETF at $8.80 (NUGT), made the chart then did not get around to posting the trade. Yes, it's been that kind of month (and Year #30) but it's nearly over, thankfully.

Today I made a new purchase of Golden Star Resources (GSS) at $1.06. The daily chart had a favorable trend line break BUY signal on both the True Strength Index (TSI) and the Money Flow Index (MFI) indicators.

I had been eyeing this gold miner and a couple others for several days and decided to just buy and prepare to sit.

Several fundamental issues interested me in Golden Star Resources (GSS). First, the stock sells at only .6X tangible book value ($1.06 vs. $1.71). That's cheap. There are only a few other miners on the AMEX in this 'discounted book value' range - JAG, AUMN, CDY, GBG and CGR. Of these comparables GSS seems to have the most favorable positive earnings projections going forward into the next couple of quarters, and additionally has ZERO long term debt.

Second, of the $1.06 share price I payed, the company has 44 cents in CASH. So, subtracting out the cash per share, I actually payed 62 cents per share for $1.27 of tangible gold. ($1.71 - .44 = $1.27) ($1.06 - .44 = .62). That is a true bargain considering the company is in production and the upcoming quarters are expected to be profitable.

Next, I considered significant insider buying of GSS in the past week and an unusual company reiteration of favorable guidance for the upcoming quarters. 

And finally, GSS is included in both Market Vectors Gold Miner ETFs - GDX and GDXJ. My thought is that once the US Dollar tops, miners and gold should explode higher. And, as the demand for both these ETFs will likely strengthen, so will the stock price of GSS.

A couple of weeks ago I wrote a post that rather apologetically mentioned that gold could, from a historical consideration of C-Waves, have further to fall. My two issues of concern were the consistent retracements of all C-Waves in excess of 50% during their ensuing D-Waves (this one has only retraced 38.2%), and the trend line of this C-Wave did not appear to have broken, as was the case in all preceding C-Waves.

Then last evening I got the bright idea to change my ThinkorSwim price chart display to 'Log Scale' and see what that did for my gold chart. To my surprise, it changed absolutely nothing except the current C-wave trend line - which appears to have indeed been broken 16 trading sessions ago. 

So perhaps the plot has thickened and gold is in much more of a bullish situation than I previously thought. 

In the first 15 minutes of NYSE trading this morning gold was pushed down to $1532, then rallied nearly $40 to $1571 before losing a bit of steam to settle at $1564 - this despite a monster rally in the US Dollar. That got my attention.

Speaking of the US Dollar, at present it is 4% above its 200 dma. The buck achieved this metric this past January then went into a steep correction. Last late-September the buck nearly reached the 4% mark above its 200 dma before falling into a sharp correction. And in June of 2010 the dollar made a major peak and was able to hold between 5 and 7% above its 200 dma for a matter of 4 weeks, then fell precipitously for the better part of 5 months.

In each of these three occasions, interestingly, gold behaved differently. In December 2011 gold first reacted by plummeting from $1750 to $1550. Then just days before the US Dollar peaked, gold began a 2 month rally from $1550 to just under $1800. In early September 2011 gold peaked above $1900 and managed to hold above $1800 for several weeks while the dollar put in a sharp rally. With only 9 days left in the buck's rally, gold finally gave up the $1800 level and promptly plummeted to reach the $1535 level. The June 2010 episode saw gold essentially tracking the dollar.....rising from $1140 to $1250 as the dollar mounted a huge rally that then came crashing down (with gold sympathetically retreating back down to $1160).

So while it is true that the US Dollar and gold tend to move inversely to one another, it certainly is not true all the time.

Anyway, here is a current look at the US Dollar Index with an eye on the True Strength Index (TSI) momentum indicator, Gold futures, and the % the Dollar is currently above its 200 dma.

My TSI Trading record has been updated.

Best always and keep in touch,


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