Gold might be going up, but don't even think about buying these gold stocks!
Over the last two months we've seen the gold price trickle from its low at $1,053 to $1,292 an ounce.
South African investors worldwide are piling into gold stocks.
This is a big problem according to my analysis.
You see, South Africa might have been the world's biggest gold producer, but not anymore!
In 1970, South Africa produced over 67.7% of the world's gold production.
But now it's dropped down the scale, to number seven!
And today, South Africa produces only around 4.16% of the world's gold.
This is shocking! And doesn't look like things are going to change soon.
With our Gold production dropping and the costs of mining sky rocketing, this isn't doing us justice for our gold investment decisions.
And to make matters worse, take a look at the Gold Mining Index.
While gold might be heading to a new high, I expect big downside to come for the gold stocks.
Let me explain.
Watch this critical level on the Gold index
You can see in the Gold Mining Index, the trend has been moving on a strong sideways path for the last 14 years.
During this time there’ve been lower highs and lower lows tested.
Every time one of these crucial lows or highs touches, the Gold Mining Price moves back to its equilibrium (Black horizontal line).
This time it looks like the Gold Mining Price index is failing to break above the equilibrium. This means we could see the price go back down to the 800 mark.
What a drop in the Gold Mining Index has to do with your trading
The main thing you need to take away from what I’m telling you today, is this.
The Gold Mining Index is basically comprised of the major gold mining companies in South Africa.
And when the main gold shares drop, the Gold Mining Index follows.
Do you need to cut out every gold trade you can in your portfolio?
Being a trader you know you can short (sell) gold stocks at high prices and buy them at a lower price for a profit.
But more importantly, out of the 33 top producing gold countries in the world, international gold stocks overseas, have very little, if not any, correlation with each other.
You can by all means look for the top gold producing stocks in the world and trade them.
China, Australia, Russia, United States and even Canada.
So to sum up everything. Gold might be heading back to $1,800 but I expect a crash in the Gold Mining Index to 800.
I’d stay away from any major South African Gold shares which are listed such as Anglo Gold, Harmony and Gold Fields and would rather look at trading the international gold stocks in other countries.
And if I see a change in the wind in the South African gold mining index, I’ll be sure to write to you.
“Wisdom yields Wealth”
Timon Rossolimos, Head Editor, Trading Tips
Follow us on Facebook and join the conversation: