Doubling Up on Precious Metals

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Over the past two months or so, your Bull Market Alert picks have become much more short-term bets. You saw this in the case of Arcos Dorados Holdings Inc.(ARCO), which you exited on Sept. 1, after gaining 15.29% in the stock and 130% in the options in just eight trading days.

Toyota Motor Corp. (TM) hit our $69 stop price this morning to cause us to exit this position with a loss. This bet on a Japanese recovery from catastrophes that took palce earlier this year was weighed down by the market’s pullback during the past couple of months. We did not hold any options in this one.

This week’s Bull Market Alert pick is also a short-term leveraged bet — this time on gold — through the ProShares Ultra Gold (UGL) exchange-traded fund.
Gold, of course, is the ultimate form of financial catastrophe insurance. And with global markets tumbling yesterday, investors are worried about just such a catastrophe. With the Federal Reserve publicly committed to its Zero Interest Rate Policy through 2013, it’s no surprise that the price of gold once again is soaring. After all, when the bank pays zero, and gold pays zero, investors prefer to hold their money in gold. And despite the efforts of medieval alchemists — including Sir Isaac Newton — there is no “printing press” for gold.
Some pundits are saying that gold could triple from its current levels of around $1,900 to well over $5,000. That would be good news for your position in UGL. But with the price of gold now gracing both CNBC tickers and magazine covers, I actually think we’re closer to the top than the bottom. This week’s recommendation is based on more immediate concerns.
Yesterday’s precipitous drop in global stock markets has started a short-term correction in global financial markets. In the United States, the S&P 500 had bounced 8.5% over the previous eight trading days. So a short-term correction is in the cards. The Asian markets confirmed the onset of this correction with both Singapore and Hong Kong dropping close to 3%, even as the United States remained closed on Monday.
And when global stock markets go down, safe-haven assets like gold tend to go up. You saw that with your leveraged position in silver through ProShares Ultra Silver ETF (AGQ), which rose 8.22% during Friday’s market drop.
So buy the ProShares Ultra Gold (UGL) at market today, and set your stop at $95.00. Because of the sharp move up on Friday, I am not recommending options on this right away — but I may do so, once the volatility settles.

Portfolio Update

ProShares Ultra Silver ETF (AGQ) rose 8.74% last week. AGQ moves at twice the rate of silver’s daily price change. This allows us to capture an increase in silver at an accelerated rate. An important level to watch is $250 on AGQ’s chart. If AGQ breaks up through this resistance level, and gold maintains momentum, AGQ should do quite well for us. AGQ remains a BUY.
Alliance Resource Partners L.P. (ARLP) gained 4.85% this past week. Looking back over the past decade, ARLP ranks among the top five dividend-paying, small-cap stocks. Paying an 8.2% dividend yield as of Wednesday, ARLP boasts a whopping 1,036% dividend-adjusted return during the period August 2001-August 2011. ARLP’s strong dividend history makes this play a “safe haven” of its own unique flavor. ARLP made a strong move towards the 50-day moving average this week, but remains a HOLD for now.
Bank of Ireland (IRE) fell 3.28% during the past five trading days. A report from the London-based consulting firm Centre for Economic and Business Research concludes that Ireland will be one of the first nations to recover in the European Union. The consulting firm also expects Ireland to post 4% Gross Domestic Product (GDP) growth over the coming year. IRE remains a BUY.
National Bank of Greece SA (NBG) gained 7.23% this week. After soaring last week on positive merger news, NBG is experiencing a pullback. Nevertheless, NBG has managed to make a solid week-over-week gain. NBG will test the $0.80 support level over the coming holiday-shortened week. NBG is a HOLD.

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Global markets have continued to bounce strongly over the past few days, with the S&P 500 up 8.4% just since Aug. 22.

Arcos Dorados Holdings Inc. Cla (ARCO) has done even better, soaring 15.29% over that same time period.
With the stock going parabolic, and with global markets now approaching short-term overbought conditions, I am recommending that you sell ARCO to lock in your gains.
I am also recommending that you sell y


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