Gold & Energy Stock Picks

New site: www.goldstockbull.com

2006-09-01T21:08:00.000-07:00

Update - Gold Stocks / HUI Upleg Unconfirmed

2006-08-24T18:59:00.000-07:00

Just a quick note to point out that while the HUI did momentarily exceed our 353 trigger point, it did not close above 353 and thus has failed to generate the buy signal that we are waiting for. As you can see in the chart, the HUI spiked on Wednesday 8/23, but our exact mark at 353 proved to be a tough ceiling to take out and the HUI promptly bounced off and headed lower.

We are focusing on energy at the moment, waiting for metals to decide one way or another. We are still bullish on natural gas, and think NGAS is a great play in this sector.

We are also keeping our eye on a company that plays in the wind energy sector and may profile them if our research comes out positive. They recently changed to make wind energy their focus and renamed the company to reflect this new focus. They are in talks with China to provide a large number of turbines. After initial investigation, we think this stock has the potential to double in coming months. But we have seen over-hyped renewable energy companies before (such as XSNX) and will approach this one with heavy skepticism.

Are Gold Stocks Ready for Takeoff? Try Some GDX

2006-08-21T22:28:00.000-07:00

Gold and Energy stocks both spiked today, energized by a looming deadline with a defiant Iran and downward pressure on the dollar. Gold futures surged $14 on news that Iran will reject the UN demand that it cease enriching uranium. The U.S. can't afford this war, but with the Republicans at serious risk of losing control in Washington, I wouldn't be surprised to see a significant "distraction" before November. Add the fact that we are approaching gold's seasonal high period and the action today looks be the start of the explosive wave that we and many other analysts have been forecasting.

It was particularly confirming to see the HUI continue to rise throughout the day and close strongly into the last 15 minutes of trading (kissing 345). A day like today (5.4% HUI jump) is indicative of the start of a new rally. I think we will see the HUI take out our 353 buy signal tomorrow or by Friday at the latest. When this occurs, we are backing up the truck and buying with both hands. The opportunity to make a massive amount of money is upon us.

The GDX (Market Vectors Gold Miners ETF) is an excellent mechanism for profiting on this upcoming run, as it tracks the price and yield performance of publicly traded equity securities of gold and silver mining companies, thus providing the leverage of mining stocks with diversification across a basket of companies. What does this leverage look like? GDX was up 4.9% today, while GLD (which tracks the price of gold bullion) was up just 2.3%. GDX provided more than double the gain!

The chart for GDX is looking beautiful as well. We saw a nice bounce of the 50-day moving average last week and have seen higher highs and higher lows since June. The latest candlestick formation is also very bullish, as you can see looking back at past price action each time this pattern was generated.

Action: We will pick up GDX, in addition to more of our previous pick: NXG, and our favorite silver play: SLW as soon as the HUI confirms this breakout by closing above 353. Don't be too quick to take profits, as this run should be sustained for several months.

Gold Stocks Still Looking Rangebound

2006-08-16T09:10:00.000-07:00

I am back from vacation and have been catching up with gold's latests movements. The spot price has slid a bit and the HUI shed about 20 points, bouncing twice off what seems like a support at 325.

But today's action looks more promising, with the spot price up +$10 and the HUI up 7 points (+2.2%) as of noon on Wednesday. This advance is driven mostly by softer-than-expected consumer inflation data, which serves to lower expectations that the Fed will raise interest rates again, hence putting pressure on the U.S. dollar.

Also hitting the market was news that investment demand for gold jumped 75% in value terms in the second quarter of 2006 to $2.6 billion compared to $1.5 billion during the same period a year ago, according to the World Gold Council (WGC).

And the cease-fire, which is looking like anything but a cease-fire, surely gave gold a little nudge. But I think it is just that, a little nudge, and not the driving force that so many pundits like to site.

On the flip side, the European Central Bank sold 32 million euros' worth of gold last week, which could put some downward pressure on gold over the next few weeks.

The bottom line is that we will likely remain rangebound for another few weeks, but....

...Gold is set to explode with this next wave up. This is going to be the big one! Wave 3, if you are a believer in the Elliott Wave Theory, looks to be upon us. The theory states that stock prices tend to move in a predetermined number of waves consistent with the Fibonacci series. Specifically, Elliott believed the market moved in five distinct waves on the upside and three distinct on the downside. The basic shape of the wave is shown below.

So, you may consider adding to your positions over the next few weeks. If you prefer a more solid buy signal, look for spot gold prices to close above $665 and the HUI to close above 353 before loading up. There is still a small chance of a breakdown before wave 3 and we prefer to have the confirmation of the next uptrend in place before committing. You will only miss a very small portion of the run and you will be minimizing risk. But it is critical to be ready to jump in fast once these confirmation points are taken out. The first leg up will be fast and furious, leaving hesitant investors in the dust.

We will keep this space updated with our thoughts and movements until then and will post additional stock picks that will offer the best upside in this next wave.

Action: Sit tight and wait for the confirmation points to be taken out ($665 gold/353 HUI). Then jump in quick and enjoy the ride.

White Sands

2006-08-08T17:38:00.000-07:00

I will be on vacation for a week, sitting on white sands in Florida. Please check back for a new stock pick on Wednesday of next week.

How are we doing in our first few weeks of issuing stock picks???

If you would have picked up SLW warrants with us, you would be up 27% in the last few weeks.

If you would have picked up NGAS on our buy signal yesterday, you would have made 7% in a day. We were correct in predicting that earnings would beat estimates and we will be holding NGAS until it hits at least $12 (a gain of over 40%!)

Time to hit the beach.

Cheers,

goldguru

Energy Stock Pick (NGAS)

2006-08-07T20:02:00.000-07:00

NGAS Resources has been our favorite Natural Gas play for a while and we have patiently been waiting for a buy signal. That buy signal is now upon us.

NGAS Resources, Inc. is an independent exploration and production company focused on unconventional natural gas basins in the United States that support repeatable drilling opportunities, principally in the southern portion of the Appalachian Basin. The Company specializes in generating its own geological prospects in this region, where it has established expertise and recognition.

NGAS (market cap $191M) has posted impressive profit growth, increasing from $15 million in 2004 to nearly $23 million in 2005. This trend has continued into 2006, with NGAS increasing production revenue by 116%. In this quarter alone, NGAS drilled 79 gross wells or 19 (net). They have also been aggressively pursuing strategic acquisitions and were recognized by Fortune Magazine as one of the top 100 fastest-growing small businesses for the second consecutive year.

And to the seal the deal, NGAS is well-managed and unhedged (or do I repeat myself?) We like management that does not hedge. It sends an important message to investors - "we believe prices will continue to rise and we believe in our ability to capitalize on these advances. Furthermore, we are in this for the long run and you can count on us to make the best decisions for the future of the company."

In my consulting experience, I was often frustrated by executives with a complete lack of long-term planning. They did not want to hear about what would be best for the company over the next 5-10 years, they wanted to know how they could put up some impressive growth figures next quarter, get their bonus, juice up their resume and move on to a higher paying job with another company. But maybe the system is set up to encourage exactly that. Anyway, NGAS management seems to understand how to grow a company and their unhedged position is just one indication of it. Another comforting indication is recent insider transactions. 8 different executive and board members acquired over 15,000 shares on March 29th, at around $8.10-$8.50.

The most important consideration for our timing and issuing of a buy signal is the price action of natural gas itself. From December of 2005 to May of 2006, natural gas prices (per mmBtu) dropped sharply from $15 down to just $6. Recent price action saw a jump to $8.20, attributed mainly to the recent heatwave. The price has since retreated back under $7, but we think this is just a temporary pullback driven mostly by profit-taking. While some analysts may see this jump as a temporary reaction to the high temperatures, we believe prices have considerable room to run and this quick spike is just a proverbial kick in the donkey's ass.

Another compelling reason to be long natural gas is the recent divergence with crude oil. Dividing the oil price by 6, gives you a trend line that has consistently tracked the price of natural gas. However, the two trend lines have recently diverged, as oil has continued to rise and natural gas took a sharp downturn. These two lines should come together once again and we are betting that it will be due to a rise in natural gas prices, as opposed to drop in oil prices.

Investments in natural gas futures and equities are not for the faint of heart. It is the most volatile of all commodities. But we foresee much higher prices between now and Novemeber, as demand grows and oil prices remain high. In the short-term, if significant hurricane activity materializes and prices follow similar movements to last year, we could see prices over $12 in a hurry.

With the leverage offered by NGAS Resources, a movement above $12 in natural gas prices could easily move NGAS stock up 40-50% from current prices. Even without hurricane pressure, we think NGAS will find strong support around $8 (10% decline from the close today of $8.90) and likely push above $10.50. This is especially true for the short-term, as natural gas is going into its high season.

So with upside potential for a 50% gain and downside risk around 10%, we really like the prospects.

You may want to wait for Q2 results: NGAS will be releasing its second quarter 2006 financial results after the market close on Tuesday, August 8, 2006. Management will host a conference call on the same day at 4:30 p.m. (Eastern). But despite low natural gas prices, we expect relatively strong results. We bought in today and price action seemed to confirm that others are expecting good earnings - up 2.5% today and up another 1.1% in after-hours trading.

Action: We purchased shares at $8.60 today.

Consumer Prices Down 50% Over Past 5 Years!

2006-08-04T12:01:00.000-07:00

President Richard Nixon took the American dollar completely off any gold standard in 1971. Unlike our current fiat currency, money backed by gold cannot be created arbitrarily by government action. This restraint is key to preventing artificial inflation and the devaluation of a currency. It removes "currency uncertainty," keeping the credit of the issuing monetary authority sound, and encouraging lending. The gold standard also serves to prevent governments from starting unnecessary wars, as they can no longer simply print the funds necessary for the war machine.

If you have a pulse, you are aware that US dollars are losing purchasing power and the hidden tax of inflation is slowly draining the savings of most Americans. If you are a goldbug, you have been dreaming of a return to the gold standard and responsible monetary policy. Of course, those in power would have to go down kicking and screaming (preferably in handcuffs) before this would happen. But lest you have any doubt regarding which standard would best hold value and conserve your hard-earned wealth, consider the following example:

Jack is a goldbug dating a women named Jill. Jack immediately converts his earnings into gold and holds all of his assets in gold.

Jill thinks gold is a barbaric relic and keeps her savings in US dollars. After arguing for a while about which approach is best, Jack & Jill decide to part in 2001.

5 years later they cross paths in a grocery store, exchange formalities and talk about old times. Jill mentions how ridiculous times are, with gas prices above $3 and groceries now costing a fortune. Jack, having saved in gold rather than dollars, just smiles.

For Jack, prices have actually fallen by 50% over the past 5 years. For Jill, prices have increased year over year, creating significant stress on her financial situation. How could things have turned out so different in just 5 years?

When you price consumer goods in dollars (like Jill did), you would have experienced 14% inflation in the last 5 years (using the government's CPI data).

When you price consumer goods in gold, like Jack did, you would have experienced 50% deflation in the same 5 year period. That's right, prices for consumer goods (as measured by the government CPI Index) would have actually dropped by more than 50%!

In 2001, the CPI Index was 178 and it would have taken 316 grains of gold to buy the CPI (gold priced at $270 per ounce). In 2006, the CPI went up to 203, but gold went up to $618, meaning only 158 grains are required to buy the CPI.

Got Gold?

Good Friday for Gold Stocks?

2006-08-04T02:18:00.000-07:00

Just a quick reminder...

The HUI did not break through our confirmation point of 353 during the Tuesday/Wednesday rally, so we are still parked on the sidelines for now. Although most indicators are still looking good, we are waiting for the HUI to take out this pivot before making any significant purchases. We may remain rangebound for a while longer, so have patience but be ready to pull the trigger because we expect the next move to be steep. NXG also failed to confirm so far this week, so we are holding.

Great News!! - Our pick of Silver Wheaton warrants, which was announced on this site, has generated a return of 25% in just 2 weeks!!!

Will it be a good Friday for gold? Stay tuned for updates, including another stock pick next week and an analysis on the change in consumer prices over the past 5 years (priced in Gold, rather than dollars). We think you will be amazed.

Gold Stock Pick #1 (NXG)

2006-08-01T13:55:00.000-07:00

A 20% Return Possible in the Short-Term / Long-Term No-Brainer

Northgate Minerals Corp. (NXG) Northgate Website

One of our favorite gold stocks is Northgate Minerals. We are especially keen on Canadian properties or those outside the potential for Nationalization. Northgate’s primary asset is the Kemess mine, north of Vancouver in British Columbia. In 2005, Northgate produced 280,000 ounces of gold from this mine at an average cost of just $205. The mine also produced 74 million pounds of Copper. 2006 production estimates push these numbers up to 320,000 ounces of gold, 85 million pounds of copper, plus 417,000 ounces of silver.

But this is just the tip of the iceberg. Proven and probable reserves amount to over 5.5 million ounces of gold and Northgate is expanding the Kemess mine north, to a new open-pit with ore reserves projected to 2020. In addition, the recent Young-Davidson acquisition in Northern Ontario, adds at least 1.5 million ounces of gold, with extremely positive drill results set to expand this potential of this property.

Lazy investors taking a quick look may have been turned off by hearing Northgate is hedged. However, Northgate has been aggressively winding down its hedge positions, which now represent only 2.5% of proven and probable reserves.

In addition to high-yield, low-cost properties, positive drills results and being 98% unhedged, we also believe Northgate is an attractive mid-tier acquisition target (market cap $817M), providing further reason to own this stock. Also of note, UBS upgraded NXG to "Buy" on July 27th.

Northgate went on a tear at the beginning of 2006, with the share price more than doubling from January to May. However, the price has since been consolidating in the $3 to $4 range and now looks poised for a huge upside breakout. Both RSI and MACD indicators are giving bullish signals (see chart below).

We will look for the price to close above $3.90 for confirmation and believe it will encounter little resistance until the $4.60-$4.70 range (potential for a quick 20% gain!) Failure to close above $3.90 in this latest uptrend will negate our buy signal. We will keep you posted on our thoughts and movements regarding Northgate.

Good luck and happy investing!

Correction Threat Subsiding for Gold & Silver Stocks

2006-07-30T18:01:00.000-07:00

We are becoming increasingly optimistic about the short-term outlook for gold stocks. In the chart below, the HUI bounced nicely off the 200-day moving average and has since shot up through the 50-day moving average. We anticipate this action to be the precursor to a sharp upside breakout.

Head fake? We don't think so and have added to our long positions. For confirmation, we will look for the HUI to break through the recent high of 353. If this happens, it is time to load up and enjoy the ride back towards 400. Summer could keep the gold price rangebound for a few more weeks, providing some much-needed consolidation before making new highs in November/December.

However, in case this jump turns out to be a head fake, we are setting tight stops and will consider any HUI downturn (especially a close below 310) to be a sign that further correction is imminent.

Check back later this week for details on which stocks we are moving into, both in gold and energy.

Pacing the Sideline & Silver Stock Pick #1 (SLW)

2006-07-25T20:51:00.000-07:00

Gold had become extremely overbought in May, with the HUI breaching 400 for the first time since this bull began. As is typical for this market, it also overshot in the selloff, which took the HUI down to 270 in just one month!. With the war between Israel and Lebanon, it wasn’t surprising to see gold starting to recover from the selloff, retracing 60% of the loss to 350. But what has been surprising is that it has since given back 60% of that gain (hello Fibonacci) and has been sputtering at attempts to take off, when conditions seem ripe.

So the big question is: What's Next?

We believe a massive battle is going on behind the scenes between US interests that would like to see a lower gold price (indicating inflation is in check) and foreign nations diversifying out of dollars. This is a major contributor to the intensifying roller-coaster ride, along with uncertainty over the direction of the Middle East conflict.

Gold stocks will surely take off if the war escalates, but if things settle a bit, this artificial support will be removed and the downward pressure could be substantial. The fact that gold hasn’t taken off supports the theory that strong downward pressure is being exerted.

So we have reduced our precious metals holdings to under 50% of total portfolio value. This is still aggressive due to our mid and long-term targets, but will keep the powder dry and ready to take advantage of the envisioned decline. Put simply, we believe the downside risk is much greater than the upside potential and recommend a cautious short-term approach. But we are staying prepared to buy in again quickly, as we believe corrections will continue to become shorter in duration. Furthermore and unfortunately, we don't see any hope for a cease-fire in the Middle East.

If gold is headed lower before moving higher, we expect this correction and subsequent basing to be relatively quick. While the war will remain the wildcard, we see the next big leg up to begin by mid-November, even if some resolution is reached. This next leg up, keeping with the Elliott Wave theory, will be the largest we have seen to date.

We are making a silver play via large purchases of warrants in Silver Wheaton. Expiration in November of 2009??? Do you think silver will test $20 sometime in the next 3 years? Easy money with impressive leverage. Info on Silver Wheaton Warrants

((Action)) We picked up series A warrants (SLW.WT.A) for $1.21US.

Tip: If you are in the US and trade via TDAmeritrade, call them to get the bid/ask/last and the symbol you need in order to trade Canadian warrants online and not pay $49 fee for phone trades.

Why You Should Be Reading This Blog

2006-07-25T19:07:00.000-07:00

I am an individual investor that has been tracking the secular bull market in gold and silver since its inception, back in early 2002. In addition, I have been studying the emerging bull market in energy since it took off in early 2004. In both of these markets, I have been producing returns of greater than 60% per year.

I have several years experience analyzing data, charts, market trends and competitive movements for Fortune 500 companies. Through this blog, I will share my portfolio, trades and thoughts on the stocks and ETFs that I think will provide the best return in the coming years. Furthermore, I actively seek to identify takeover targets, sleeping giants, and leveraged plays that have significant chance for upside explosion in the short term.

I put in several hours per day of research and analysis, both technical and fundamental, identifying trends and correlations between stocks and outside stimuli. I don't rely on one static system, but take into consideration the full sphere of forces that influence the prices of gold, silver and energy stocks. These markets are extremely volatile and very difficult to predict, but I thrive on this challenge and have fine-tuned my methods to the point where I have been able to quit my corporate career and focus on the opportunities at hand.

Everything on this site is my opinion and should not be taken as investment advice. Posting helps me to crystallize my thoughts and strategies and I hope my research brings good fortune to others. As always, you should do your own due diligence and make your own judgments. You are solely responsible for the outcomes of your investments. Good luck and happy investing.