By MoneyMorning.com.au
“Back up the truck.”
Those were the first words said by Diggers & Drillers editor, Dr. Alex Cowie, as we stepped into our Fitzroy Street office this morning.
By that the Doc means it’s a good time to buy cheap resources stocks.
Gold… down USD$87 to USD$1,576.55 per troy ounce.
Silver… down USD$3 to USD$28.94 per troy ounce.
Oil… down USD$5 to USD$94.95 per barrel.
And copper… down 16 U.S. cents to USD$3.27 per pound.
Oh, and the Aussie dollar is back below par with the U.S. dollar. It’s trading at USD$0.9903.
The best time to buy is when prices are low. Trouble is most investors think the best time to buy is when prices are high.
Of course, they don’t realise that. They think they’re doing the right thing. They buy when they feel comfortable putting their cash on the line. And that’s usually when things are looking perky.
But in this market things have a tendency to stay perky for only a short period of time.
Yesterday your editor, and our old chum, Slipstream Trader, Murray Dawes told you we had a target of USD$1,600 for the gold price…
Your editor even went a step further than The Dawes. We thought (and still think) it could even hit USD$1,500. We figured there was a chance it could hit that price over the Christmas holidays if the global economy continued to muddle on… directionless.
Turns out we got the price target right… but the timing awfully wrong. As we mentioned at the top of this letter, gold is trading at USD$1,576.55 per troy ounce. It has busted through our first target in a matter of hours rather than weeks…
And the next level (USD$1,500) is dead ahead.
As for backing up the truck, it’s hard to argue with that. All you have to figure out is what size of truck.
The gold price action is a perfect example of the point we made at the Daily Reckoning Doomers’ Ball: It’s not the timing of your forecasts that’s important, it’s your preparedness for the forecast to happen that’s key.
Put another way, the Boy Scouts’ have it right with their “Be Prepared” motto.
Just because you believe something will happen, doesn’t mean it will happen in the way you think it will.
For example, we believe in the long-term, the price of gold will go up. But because we don’t believe the price will rise in a straight line, we’re prepared to buy in small amounts over time.
And why we prefer to have most of our investments in cash right now (although looking at the latest news on Commonwealth Bank’s [ASX: CBA] “glitch”, you wonder just how safe even that is!).
Exactly how much you stick in cash is up to you. It’s all about allocating your assets where you believe you’ll get the biggest return for the least risk…
An example of how you’d do that is below:
We believe most of your capital should be in “safe” assets: cash, term deposits, dividend stocks and, yes… gold and silver. How much you allocate to each is up to you.
This is the money you don’t want to lose.
Of course, you don’t want to lose your “punting” money either. But you do need to understand that you can only make money by risking money. So what you need to decide is where you risk it.
Our preference – naturally – is small-cap stocks. But that doesn’t have to be your preference. You may choose to trade blue-chip shares or use futures, options or CFDs…
Or, if you’re like billionaire sparky-turned-mining entrepreneur, Nathan Tinkler, you could borrow a whole bunch of cash and buy and sell coal mines instead. Do whatever you’re most comfortable doing.
Just know that the bigger the risk, the bigger your potential reward… and the bigger your losses could be. That’s why we prefer small-cap stocks. Because from the outset you know your maximum loss… And if you play it smart, the loss won’t be that big.
On the other hand, Mr. Tinkler could have gone bust. But he didn’t. The thing is, for every Tinkler there’s probably a dozen or more who tried the same approach and failed. But you tend not to hear much about them.
The bottom line is this: the market has gone berserk this year… and next year will likely be the same.
That means there’s no need to rush into any risky investment all at once. But if you are tempted to “back up the truck” to the stock market, for now we’d suggest just using a small one!
Cheers.
Kris
P.S. After falling heavily overnight, gold and silver prices have levelled off. Right now gold is trading at USD$1,575.92 and silver is USD$29.07. We can’t guarantee gold and silver will rally upwards in a straight line from here, but they are certainly back in the buy zone. And if prices do move higher, you can almost be sure small-cap gold and silver stocks will jump higher too. Dr. Alex Cowie has handpicked 10 gold and silver stocks he says are best placed to gain from soaring precious metals prices. Click here for details…
Related Articles
Special Report: Six Extraordinary Resource Investment Opportunities for 2012
The Only Gold and Silver Stocks to Buy
The Secret Aussie ‘Bank Run’ is a Sign to Buy Gold
Why Gold Should Become Your ‘Stay Rich’ Asset
From the Archives…
How to Turn Paper Money into Silver and Gold
2011-12-09 – Kris Sayce
Will Silver Break Through $50 an Ounce in 2012
2011-12-08 – Dr. Alex Cowie
Investing in the Market for Survival and Prosperity
2011-12-07 – Aaron Tyrrell
China, the U.S. and the Scramble for Commodities
2011-12-06 – Dr. Alex Cowie
Santa Claus: A Market Rally Not Worth the Risk
2011-12-05 – Kris Sayce
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