It’s Not Too Late to Get Into Gold Stocks

“It was the most expensive vacation ever,” my friend Sean confessed to me on the telephone last night. “Not only did we go to Italy and pay $1.45 for a euro, but I was out of the country when you said to buy gold stocks two weeks ago. Now what am I supposed to do?”

[ad#Google Adsense 336×280-IA]It has been a great two weeks for gold bugs. The Market Vectors Gold Miners Index (GDX) is up 15% since the bullish percent index for the sector triggered a “buy signal.” Many individual stocks are up as much as 30%. And if you traded call options on the sector, you could be looking at triple-digit gains.

Like I said, it has been a great two weeks.

But what if you missed the boat? What if you were out of the country, or just caught up doing other things? What do you do now if you missed the gold stock rally?

First of all, understand that gold stocks ARE going to go higher. Gold’s bullish percent index (BPGDM) has barely budged off the bottom… And there is plenty of room left for it to run. Take a look…

The index closed yesterday at 33, and it won’t get overbought until it rallies above 80. Despite the big rally we’ve already seen, there are even bigger gains ahead.

Nothing moves in a straight line, however. Gold stocks are notoriously volatile. Big rallies one day are often followed by big drops the next. Chasing the stocks higher after a big move is rarely a good idea.

Rather, let’s use the action last year – after the BPGDM buy signal in February 2010 – as a guide…

As you can tell from the chart, the buy signal in February 2010 sparked an immediate, nearly vertical rally in the gold stocks. GDX popped 12% higher and left many traders wondering if they had missed the boat.

[ad#article-bottom]Gold stocks then pulled back and gave up roughly half their gains. Anyone who missed the first move could have hopped aboard the trade at that point and earned 20% over the next two months.

We’re probably headed for something similar this time around. GDX is up about 13% since the buy signal two weeks ago. It has been an immediate, nearly vertical move. Now, the sector is due for a brief pullback. A 50% retracement of the gains would put GDX at about $56 per share.

That looks like a good spot to start buying if you didn’t get in earlier.

Best regards and good trading,

— Jeff Clark

[ad#jack p.s.]

Source:  The Growth Stock Wire