gold investment, silver investment

E-mail Jul 2, 2008

July 2, 2008, 12:00 PM
In our previous e-mail we have indicated that we have decided to use our speculative capital to purchase call options on various securities, mainly precious metals stocks. We have realized sizeable gains on most of these options and decided to put part of the proceeds into other transactions. The second part increases our long term holdings (precious metals junior companies), the third part of proceeds is kept in cash. We have changed our preferred sector as far as SPECULATIVE capital is concerned.

First, the move that we have profited on might have not ended right now and this probably IS the case, as we expect a small pullback after which the move is continued. The most of the move could be behind us, meaning that we do not achieve new highs in gold, silver and HUI. If we expect the move to continue, then why did we sell? Because we think that there are other companies that will do better in the very near future than the precious metals stocks. We mean the broad range of industrial commodities (and related) and respective stocks. They are usually influenced by the general stock market to some extent, and right now though they were among the strongest stocks, they too have declined. This spells opportunity, as it seems that the general stock market has hit at least temporary bottom. Rebounds are usually fast and their size is big enough for them to be tradable, and right now we expect the aforementioned stocks to magnify such rebound. Precious metals stocks, on the other hand, have been lately very negatively correlated with the DJIA and SPX (on average they moved in opposite directions), so if the bottom is in fact in, then we might see some pullback in the PM's. Either way, we think industrial commodities (and related) and respective stocks will prove to be more profitable in the short term than precious metals stocks. Mixing these stocks and precious metals might also be a good idea if you want t o be sure not to miss out on any unexpected rally in gold or silver. In that case we would still consider closing the short term positions and mixing the medium-term ones.

Before we proceed with giving you details, please note that this part of the Update is for risk-tolerant and disciplined speculators. If you decide to follow us in these trades, please remember to use only a s mall part of your portfolio. How small? Definitely not more than our Position Size Calculator (please see the Tools section for more details) suggests. Even that may be too much for some people. Always ask yourself whether the position is small enough, not to interfere with your perception of the situation on the market, should you lose that money. It's better to use too little money, than too much. Consult your financial advisor, if you haven't done so already.

We decided to divide our speculative capital into 2 parts depending on the time to expiry of options. First part are the short term options (expiration: August or month closest to it), the second part are medium term options (expiration: October or month closest to it). We have put the same amount of capital into medium term options as we put in the short term ones.

We have sold options on SSRI, PAAS, GG, AEM, AUY, NEM, SLW and we currently hold the following:

Short term call options:


Medium term call options:


Telling you exact strike prices might be difficult, as it depends on the price of the underlying equity on the day of the purchase. We buy out-of-the-money options, but the strike price should be rel atively close to the stock price. This is especially important in the short term. It is very occasionally when we make exceptions from this rule.

Our long term position consists of juniors and we are holding them, mostly on the profit.

We have previously outlined our preferences regarding the type of companies that we currently prefer as long term holdings, but for newly registered Users - right now we favor junior mining companies to big companies. We have established a position in juniors and we have accumulated profit on it in the last 6 weeks. We cannot emphasize enough that the key to successful investing in juniors over time is diversification.

All of the above is just our view on the current market situation and may prove wrong, as nobody can be right each and every time. By registering at our Website, you confirmed that you are interested in our thoughts on the current market situation, so we're sending it to you. Please do your own due diligence before making any investment decisions.

This is the initial, basic from of our commentary. The Weekly Commentary (+updates) will include more thorough, complex and longer content with detailed, User-friendly explanations. The new, convenient form will include many charts and tables with specific comments.

We will be launching our paid service soon, but before we do, we would like to ask you for specific suggestions regarding the 'weekly commentary' section. If you have any suggestions, requests, ideas, or you think that something could be done better than we currently do, then please drop us a note - either by replying directly to this message, or through the 'Contact us' section on our Website. Ultimately, it is you, who will benefit, if the form of our service better suits your needs.

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