Monday, September 16, 2013

"I'd like to live as a poor man with lots of money." --Pablo Picasso

GOLD MINING SHARES REMAIN ONE OF THE LAST BARGAINS, ALONG WITH APPLE (September 16, 2013): Gold mining shares were one of the first important cyclical assets to complete important bottoming patterns in the final week of June 2013, as they had mostly slumped to their lowest levels since the first week of December 2008 and in some cases to their lowest points since October-November 2008. Since then, they have begun to form several important higher lows. Other shares of commodity producers similarly completed multi-year lows in late June, early July, or early August. Emerging-market equities completed multi-year bottoms several weeks later, mostly touching their lowest points in the final week of August 2013. Looking back, these will almost certainly be seen as some of the best bargains of the year.

Interestingly, Apple (AAPL) has followed a pattern surprisingly similar to that of gold mining shares, having reached an important intermediate-term top in early September 2012, followed by a plunge to a bottom in late June 2013, and a subsequent bullish pattern of higher lows. As mining shares and emerging-market equities continue to rally for approximately another half year, Apple is likely to behave similarly. It might seem odd that a premier technology company's share price would act like the stock of a mining company, but the financial markets often generate unexpected parallels. Investors' mood toward Apple has closely tracked its valuation: whenever it is elevated, people are confident that the company will continue to create unbelievable innovations; whenever its stock price is recently depressed, investors will obsess over the prowess of its competitors and worry about its long-term survival. Sentiment always follows the market.

If you ignored my previous update in which I strongly recommended the purchase of funds of emerging-market shares, it's not too late to participate, although the best bargains have likely already come and gone. Those assets which are still below their respective 50-day simple moving averages probably represent the most compelling opportunities.

My favorite funds at the present time include GDXJ, SIL, GDX, GLDX, and PLTM. These consist of gold, silver, and platinum mining companies. Although their valuations are not as depressed as they had been on June 26, 2013, they have given up more than two thirds of their recent gains on average while the media have become once again almost unanimously gloomy toward their future prospects. Analysts are once again confidently predicting gold prices near one thousand U.S. dollars per troy ounce and lower, just as they had done in the early summer when the true nadir was being completed. If you own these shares in retirement funds, you can do a rollover into a Roth IRA and thereby pay taxes at their depressed valuations. This could save a lot of money in the future, especially since all of their subsequent gains will be tax free.

Disclosure: Since May 2012 I have been progressively accumulating long positions in funds of commodity producers whenever they have been most disfavored. I completed selling many funds of general equities which I had bought near their important low points in 2012, and which I unloaded on a gradual basis from January 28, 2013 through May 3, 2013. In recent months I have also been buying the shares of emerging-market country funds. During the past several trading days, I have added modestly to my funds of precious metals mining shares. From my largest to my smallest position, I currently own GDXJ, KOL, XME, SLX, GDX, REMX, SIL, COPX, SCIF, GXG, GLDX, RSX, VGPMX, ECH, EWZ, IDX, BGEIX, VNM, ZJG (Toronto), PLTM, URA, and EPU. I have significantly reduced my total cash position during the past three months in order to increase my holdings of the above assets.