The moves forecasted by the COT signals make them very adaptable to commodity based ETFs, writes And...
Precious Metals Back in Play
09/11/2012 11:30 am EST
These two precious metals ETFs should be leveraged winners in coming weeks, so it's a good idea to establish a position before the crowd, writes Doug Fabian of ETF Trader.
A belated welcome back from the Labor Day holiday. I hope you had a great day off, and I hope you’re ready for a lot of market action over the next several weeks, as that’s precisely what I think we’re going to get.
We found out what the European Central Bank had to say about its highly anticipated bond-buying scheme to backstop struggling Eurozone countries. This week, we find out what Fed Chairman "Big" Ben Bernanke and the Federal Reserve have to say about the economy, and about any move to add more monetary stimulus to the system.
The smart money right now is that the Fed will do some type of quantitative easing, or QE3, either at this meeting or at the following meeting. I say the smart money, because if the Fed does ease it will be very bearish for the US dollar, and very bullish for precious metals. In fact, over the past several days, we’ve seen some nice movement in both gold and silver, and that’s a trend I want you to jump on right now.
I want you to buy two precious metals funds, the Market Vectors Junior Gold Miner (GDXJ) and the Global X Silver Miners ETF (SIL).
Now, in the case of GDXJ, we owned this fund last week and were stopped out of it for a small gain. The volatility last week caused the fund to fall below our stop-loss, but now the trend is back on track, and I suspect there’s much more upside ahead in this gold mining stock ETF.
To protect yourself on the downside here if gold doesn’t go our way, I want you to place a stop-loss order on GDXJ at $20.50.
As for SIL, this fund holds companies engaged in silver mining operations. Similar to the gold mining stocks in GDXJ, the companies in SIL are set to benefit from a looser Fed. That’s because the value of the dollar is going to come under pressure, and that will be good for precious metals and the mining companies that dig them out of the ground.
Of course, we never want to enter a position without downside protection, so here I want you to put in a stop-loss order at $20 along with your buy order.
Make your move back into GDXJ, and into SIL, as it’s time once again for some precious profits.
Editor's Note: Where do you think precious metals are headed? Will the junior miners make a run here? Is platinum a better play here (see article below)?
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