Right now is the best time in a year to buy into the precious metal sector.
My long-time readers know I rarely buy gold stocks. Because of the long-term bull market in gold, these stocks get very popular with the public in a hurry. Gold stock investors are a highly emotional bunch, and they'll change direction more often than a pair of squirrels on the highway. Follow the crowd, and you'll get run over.
But follow my advice in today's essay, and you'll always make money trading gold stocks.
The trick is to avoid buying gold stocks when they're running higher and when everyone else is rushing into the sector. You want to buy into the sector when the stocks are oversold and everyone else is jumping out of them.
This strategy has produced a pretty good track record. As I mentioned, I rarely buy gold stocks. But the last six times readers of Advanced Income (my income-focused trading advisory) have bought them, they've made money... with safe, fast gains ranging from 15% to 110%.
The strategy? Just follow the single best gold stock timing indicator in the world: the gold stock sector's bullish percent index (BPI).
A BPI is a momentum-based indicator that measures overbought and oversold conditions. It shows us when gold stocks may be ready to snap back in direction, both up and down.
Most sectors are overbought when the bullish percent index rises above 80. This is a warning sign the upside move is stretched and may need a pause. Stocks are oversold when the BPI drops below 30. This usually occurs near the end of a downside move.
Oversold and overbought conditions are not, by themselves, reasons to buy or sell stocks. Oversold conditions can get more oversold just as overbought conditions can get even more overbought. Trading signals occur when the BPI reaches an extreme level, then starts to move back in the other direction... when a sector's extreme move has lost its momentum.
These extreme "buy gold stock" readings don't flash often. But one is flashing right now. Here's the current overbought/oversold BPI reading for gold stocks:
As you can see, gold stocks haven't been this oversold since late 2008. This was an extraordinary time to buy gold stocks. Just after the extreme reading back then, the big gold stock ETF doubled in price in four months. Some of my favorite silver stocks tripled in price in just months. My readers were along for the ride.
If you do nothing but follow these overbought/oversold gold stock readings, you'll do far better in gold stocks than most folks ever will. You're either a contrarian with these stocks... or you're giving your money to those of us who are.