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Gold Stock Selection, Trading and Investment Time Frames
Reg will be speaking at the 2003 Calgary Resource Investment Conference
Reg will be available for questions at booth #31
The current secular bull market in gold bullion began in mid September 2001. Most of the large percentage and net gains in such markets are made by junior, mid-tier and independent companies. Unlike large capitalization companies, they tend to make their largest percentage gains over relatively short time frames. In gold market sector corrections they often give back a large part of their gains before breaking out again.
The price history of many of these stocks is one of short, sharp upward bursts followed by speedy corrections. In order to focus on these short time frames we combine the use of stock screening, phase analysis and seasonality in order to optimize stock selection and trading time frames.
The 4 Phases of the Current Secular GoldAnd Precious Metals Bull Market
One can separate the gold and precious metals market to date into four distinct phases. Concentration on changes in the gold bullion price alone is not sufficient to explain the behaviour of these securities.
Phase I – Early Leader Phase – Sept. 2000 to Sept. 2001
Phase II – Price/Volume Index Breakout Phase – Oct. 2001 to Jun. 2002
Phase III – Index Correction Phase – Jun. 15, 2002 to Sept. 30, 2002
Phase IV – Junior Exploration and Funding Phase – Oct. 2002 to present
Correlation of Gold Bullion Prices With the 4 Phases
Phase I – Sept. 01, 2000 ($277.00) to Sept. 28, 2001 ($293.00) +10.5%
Phase II – Oct. 01, 2001 ($290.00) to Jun. 14, 2002 ($322.00) +10.8%
Phase III – Jun. 14, 2002 ($322.00) to Sept. 30, 2002 ($323.00) +1%
Phase IV – Oct. 01, 2002 ($321.00) to Sept. 05, 2003 ($378.00) +17.7%
Phase I – Early Leaders
These are stocks that do not need a high or increasing bullion gold price to appreciate. They are the elite of the group; almost all of them are increasing reserves and production, as well as lowering costs or making key acquisitions. This group has a second move when the index breaks out.
By the time we get into Phase IV, these stocks tend to stabilize with only a few making substantial gains. Number of stocks in this group: 18.
Average (mean) percentage gain prior to index breakout: +111% Average (mean) percentage gain to 2002/2003 subsequent high: 451%
Phase II – Gold Index Price/Volume Breakout
In this phase, almost all gold stocks, producers, development and exploration companies appreciate. Funding becomes available for development projects, many of which have been kept on hold for years. Most of stocks in the Phase I group get a second run, along with the junior golds.
Analysis of the Stocks in Phase II – October 2001 to June 2002
Number of Initial Breakouts occurring in each month
Number of stocks that peaked in each month
Duration of bullish trend for individual stocks (i.e. Optimum Holding Period)
Total number of stocks: 106
Mean Optimum Holding Period = 4 monthsMedian Optimum Holding Period = 4 months Note: Month in which initial breakout occurred and peak subsequent high was reached are counted as complete months, which tends to exaggerate the length of the Optimum Holding Period. Phase III – Index Correction
When the vast majority of stocks in this sector are reaching new highs a correction invariably occurs. This came in mid June 2002. Such corrections can be fast and severe. During this phase, there are few, if any, breakouts on our screening radar system.
Phase IV – Junior Exploration and Funding
Gold and precious metal prices, and even base metal prices, appreciate to the point that small high-grade and large low-grade deposits become economically viable. Funding at both the retail and institutional level becomes readily available. New gold companies are created and funded.
A detailed listing of gold and precious metal stocks, with their respective optimum holding period times frames, is available upon request via email reg_ogden@canaccord.com.
Reginald W. Ogden Canaccord Capital Corp. Phone: (604) 643-7552 or 1-800-663-1899 FAX: (604) 643-7009 E-Mail: reg_ogden@canaccord.com
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