Thursday, October 31, 2013

Why I Exited Most of My Gold Positions Today

What a busy day -- I've had no time to update the blog.  But I sold a bunch of my precious metals positions at the open today. Here's why ...

Even though the Fed announced no change in its quantitative easing policy yesterday, gold sold off hard. That's a bad reaction to good news -- bearish.

The pain continued when the Wall Street Journal's Jon Hilsenrath -- aka The Mouth of Bernanke -- published an article saying that "taken together, the Fed
The Mouth of Bernanke strikes fear in markets
isn't taking a December adjustment o the bond-buying program off the table."

That caused the jittery bots on Wall Street to put on a hawkish trade. They sold gold bonds and stocks.  The Dollar Index rallied.

Too bad the bots didn't bother to read Hilsenrath's next sentence: "But that comes with the strong caveat that it depends on whether the economy is living up to expectations."

Interestingly, many gold miners rallied at the end of the day yesterday. So I was on the fence.  But thinking about it overnight, I decided that discretion was the better part of valor.

So, I exited ...

  • Silvercrest with a small loss (8.5%, but it was a half position, and cheap).
  • Global X Silver Miners flat. I gained 3 cents a share on the trade -- not enough to cover costs.
  • Market Vectors Junior Gold Miners at a 5.4% loss. Grr!
  • Market Vectors Gold Miners at a 1% gain.
  • B2Gold at a 2.5% gain on the combined position. I'd doubled up on that one. 
The only precious metals position I kept was Primero. Because I don't know which level of support GLD is going to test.

(Updated chart)

Maybe gold is going to head higher from its 20-day moving average (I can always buy more miners if it does). Or maybe it will go test support around 121.

I would look forward to that buying opportunity. 

I'll be more selective on miners operating in Mexico, because the Mexican Senate passed the new mining royalty law. As of January 2014, mining companies in Mexico will pay an additional 7.5% royalty on pre-tax profits and precious metals will pay 0.5% extra on top of that.

In any case, I strongly believe we saw the bottom in late June. 

That's when the selling by gold ETFS seemed to peak. Investors sold 750.2 tons through gold-backed exchange-traded products this year, erasing $60.1 billion from the value of the funds, according to Bloomberg data. Holdings reached 1,881.4 tons on Oct. 25, the lowest since April 2010.

In other news, the Chicago PMI blew out expectations, coming in much higher ...


Here are the details. Two of the most impressive aspects of this month's Chicago PMI report were the big jumps in Production (+13.1) and New Orders (+15.4).

Will more news like that cause the Fed to hike rates?  I think the Fed is looking for more jobs. And the looming budget battle should cast a cloud over the economy. Once traders realize that, they'll come back to gold.

Elsewhere in the world, demand for gold is heating up.


  1. Why did you sell everything but Primero? Surely Primero is going to be harmed by the new Mexican royalty law.

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