Let’s get right to the mailbag…
With the dollar probably strengthening, is this the time to take profits in gold and silver mining stocks?
Thanks for the question, Don.
Gold stocks and the dollar do tend to move in opposite directions over time. But the moves aren’t always immediate.
For example, the dollar popped a bit higher this week, but gold stocks rallied pretty well too. So, I wouldn’t suggest dumping all of your gold stocks just because the buck might bounce.
Of course, I did mention on Tuesday that I was trimming some of my exposure to the gold sector. There are still plenty of reasons to be bullish on gold stocks. But after such a strong move higher over the past month, there are now a few reasons to be cautious, too. Here’s how I see it…
These things are bullish…
- Seasonal patterns for gold stocks are bullish until late September.
- The Gold Sector Bullish Percent Index (BPGDM) is in an uptrend and is only at 35 – which is far from overbought levels (above 70).
- The GDX/Gold ratio chart is still trending higher.
These things are cautious/bearish…
- The VanEck Vectors Gold Miners Fund (GDX) is bumping into resistance near the April highs. And GDX is now quite extended above its 9-day exponential moving average.
- According to the most recent Commitment of Traders report, the “smart money” is now short 220,000 gold futures contracts. That’s approaching a level that often corresponds to peaks in the price of gold.
- The dollar looks poised for a bounce.
Taking all of these conditions together, it seems reasonable to me to trim some profits on gold stocks and tighten up protective stops.
You usually suggest a target price of “about” $1.25 or “about” 95 cents. Can you define ABOUT? Plus or minus 2%? 5%? 10%?
Thanks for your help.
Hi Charles, thanks for your question.
Option prices can be volatile. So, in every trade recommendation, I provide a price where I think most subscribers should be able to execute the trade. I use the word “about” to allow some wiggle room if the price moves between the time I write the recommendation and the time you receive it.
But, and this is really important, I also write – in every recommendation – the maximum price you can pay (or minimum price you can receive) and still have a good risk/reward setup.
For example, in the trade recommendation I made on Tuesday, my advice was to sell the option for “about $0.95.” But, I also wrote – in bold print – “As long as you receive at least $0.90 for the option, this is a worthwhile trade.”
I provide those trading parameters specifically so subscribers don’t chase a trade and get burned by doing so.
Also… please don’t ever enter an option order “at the market.” Always specify a limit price when trading options. That will prevent you from getting a bad price on a trade.
Best regards and good trading,
P.S. If you have a question about option trading you'd like to be featured in one of our Friday Mailbag issues, send me an email right here.