Raw Greed Gold Update

Posted on October 31, 2006 , filed under Stocks | Print This Post

Gold is currently trading at $607.70 and it appears that the metal will likely maintain my predicted price target of above $600 by the years end. Gold is behaving oddly at the moment. The metal has risen without any geo-political events or globally unsettling news. Oil prices are down and the US dollar has closed up in recent days. Oil dropping and the US dollar rising are both traditional drags on gold prices. So what’s going on with the price of gold? One plausible reason for the rise in the price of gold could be the influence of Hedge Funds using the metal as a hedge against an overbought market.

On June 12th, 2006, I wrote the following article about building a long-term position in gold and the effect of Hedge Funds on the metal:

I believe it is only a matter of time before the slew of Hedge Funds (which now number over 12,000 and control over $1 trillion in funds) pile money into the metal. I remember reading a quote from Doug Casey that the majority of Hedge Funds are likely run by 20 and 30 something’s that have never really experienced a bear market. I believe these Hedge Fund managers won’t know what to do if the market collapses and gold will provide the only reasonably safe way to invest in a bear market.

On September 19th, 2006, I wrote this article about purchasing Tanzanian Royalty Exploration Corp. after shares met my target buy price at under $5:

After writing this article, I have followed through with my strategy in accumulating shares of Tanzanian Royalty Exploration Corporation (TRE).

On September 12th, 2006, I purchased 2000 shares of TRE at $5.09. On September 15th, 2006, I purchased 4000 shares of TRE at $4.45. I currently own 10,000 shares of TRE purchased at an average price of $5.74.

I am looking at purchasing shares of Yamana Gold, Inc. (AUY) at under $9. TRE and AUY are currently my top two gold mining stock picks.

I am considering purchasing shares of Northgate Minerals Corporation (NXG) at under $3 and Coeur d’Alene Mines Corporation (CDE) at under $4.40.

On October 4th, 2006, I wrote this article about purchasing Yamana Gold Inc. after shares met my target buy price at under $9:

Today I purchased 2000 shares of Yamana Gold, Inc. (AUY) at $7.91. Gold is currently trading at $559. Gold managed to hold out at $570 levels in the last dip below $600. Gold has been very volatile in recent days going up and down often within a $20 range. I believe there is massive shorting involved with hedge funds that is prompting gold to rapidly fall. Individual investors have been sung a very pretty picture from precious metals analysts and bullish gold fans. I believe that most individual gold investors, including myself, believe that there are still uncertain times ahead that will cause gold to rebound and rise toward new highs.

I expect gold to rebound before the end of 2006 firmly above $600 again. I am continuing to buy shares of my top two picks AUY and Tanzanian Royalty Exploration Corp. (TRE) on dips.

I expect to see increased volatility in the daily prices of gold and a possible drop to $580 before headed firmly above $600 by the years end. If we see rising tensions over the Middle East conflicts or the nuclear threat by North Korea, I see gold headed closer to $800 by years end. My short-term target sell price for AUY is $10.50 in 1-3 months. My short-term target sell price for TRE is $8 in 1-3 months.

*Disclaimer: The author currently owns 1000 shares of AUY purchased at $7.91 and 7500 shares of TRE purchased at an average price of $5.74.

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