Stocks & Commodities V. 1:7 (179-181): Gold Stocks by RICHARD J.

MATURI

Gold Stocks
by RICHARD J. MATURI

C an the average investor successfully participate in the gold market without knowing the intricacies of
commodity trading, and without having to deal with the problems associated with owning precious
metals? The answer is yes. The volatility of gold prices provide ample opportunity for substantial profits
for the investor. During the past ten years, I have actively traded a NYSE gold mining stock, Benguet
(BE), with great success. Benguet is a producer of gold, and the stock can be traded for its play on the
price fluctuations of gold as well as giving the investor the opportunity to participate in the fortunes of
the company and the market overall.
A little over a year ago, I developed a trading strategy for Benguet in hopes of earning a 50's, gain after
commissions, a goal I thought was probably unrealistic. Instead, after a year of trading Benguet I realized
a totally unexpected gain of 163% over my original investment. During the period from March 1982
through March 1983, an average investment of $2,432 yielded a yearly gain of $3,971 after commissions.
This gain was in addition to any dividends paid, interest earned, and gains on other stocks while waiting
to purchase Benguet. Of course, the stock market boom contributed to my success, but if I had simply
purchased Benguet at the beginning of the period and sold it at the end, a gain of "only" 107%,, would
have been earned; a difference of 56%,Ñ which is more than my original investment goal. All this while
the price of gold from the beginning to the end of the period varied little.
My basic strategy was to set an investment goal and achieve it by capitalizing on the wide fluctuations in
gold prices that occur in the short term. Although Benguet trades in a relatively narrow range over the
course of a year, its monthly, weekly, and frequently daily price variations offer a close observer ample
opportunity to buy and sell the stock numerous times during the year for small individual profits, which
accumulate into the desired goal.
The following example illustrates the basic elements of my trading strategy for Benguet:

Article Text Copyright (c) Technical Analysis Inc. 1

Stocks & Commodities V. 1:7 (179-181): Gold Stocks by RICHARD J. MATURI

Based on the assumption of one sale per month the following figures apply to each month's trade:

The strategy was to buy Benguet at least twelve times a year and sell each time at half a point higher.
This would enable me to earn a return of $1,620 or 40%) after commissions.

Naturally, as the price of Benguet rose during the year I would need to invest more capital but the
additional funds needed should be provided by previous sales.
An average of one trade per month was basic to the investment strategy, but there might be several times
during the year when I would make several trades during the month; all the better for my investment goal.
As you can see from the table of my Benguet trades (next page) there were in fact several months during
which I made numerous trades. Purchase #10 I owned for a total of two hours for a relatively small
5.41% gain on investment, but which on an annual basis is a 1,974.65% gain. The key was the number of
times I could turn my investment around in the course of a year.

Article Text Copyright (c) Technical Analysis Inc. 2

Stocks & Commodities V. 1:7 (179-181): Gold Stocks by RICHARD J. MATURI

Admittedly, a half-point spread is not a lot for a gold mining stock. But the advantage of purchasing a
stock like Benguet is its low price range, which allowed me to purchase 500 shares at a modest
investment. And as stated earlier, investing in Benguet allowed me to play on the price fluctuations of
gold while at the same time participating in the fortunes of the company and the overall market activity.
A few brief notes on Benguet and on the use of charting in following my investment strategy are in order.
Benguet is a Philippine gold, copper, and chromite mining and processing concern. Silver is a valuable
by-product of its gold and copper mining operations. A very profitable non-mining subsidiary,
Engineering Equipment, is one of the largest construction companies in the Philippines.
Illustrated below are the price fluctuations of Benguet (Graph A) and gold (Graph B) for the period
1979-mid 1983.
Benguet appears to have a resistance level near 4 on the down side and 12 on the top side. To be safe I
purchase while Benguet is on an upward trend between 4 and 9 but exercise extreme caution above this

Article Text Copyright (c) Technical Analysis Inc. 3

Stocks & Commodities V. 1:7 (179-181): Gold Stocks by RICHARD J. MATURI

level. (See trend line on Graph A.)

In deciding when to buy or sell, it'S helpful to chart the daily price range. A simple + shows the day's
high, low, and close. A corresponding chart showing the trend of the daily price range is also valuable. A
purchase on day 2 at a price of 5¾ (the previous day's close) would make a nice profit on day 3. The use
of a Good Till Cancelled order of 6¾ would prevent the loss of the gain due to the market downturn later
in the week. Profits can still be made during days 3 through 6 due to the daily price range even though the
market is in a down trend.

Some Tips for Saving Money on Commissions and Other Trading Costs
Due to the frequency of trading, potential for huge profits, and short term gain status there are several
money saving points to consider:
1. Use a dependable discount broker to substantially reduce your commissions and thereby your
break-even point. It's wise to shop around for your discount broker since there is a wide difference
in their price schedules. The rates I used in the example are actual rates charged by my discount
broker.
2. Use the discount broker's toll free number to get daily quotes. Review your stocks each evening for
purchase and sale considerations. A fifteen minute review can earn you an extra 10%.
3. Use bank accounts with automatic transfer of funds to your discount broker. This makes life a lot
easier than trying to send checks through the mail, especially when you make several purchases and
sales in a short period of time.
4. Place "GOOD TILL CANCELED" (GTC) orders at your target price so you don't miss any
purchases or sales due to a fast moving or volatile market.
5. Use IRA accounts and custodial accounts for this type of trading to help reduce or eliminate the tax
burden.
Good luck in all your trading ventures!

ABOUT THE AUTHOR

The author is employed by Morrison-Knudsen Company, Inc. as contract administrator. His experience

Article Text Copyright (c) Technical Analysis Inc. 4

Stocks & Commodities V. 1:7 (179-181): Gold Stocks by RICHARD J. MATURI

in the business side of major construction projects across the United States has given him valuable
exposure to many aspects of finance. He has served as a board member of a highway construction firm,
as one of two trustees of the firm's self-directed pension/profit sharing plan, and as one of four
management trustees of the Minnesota Teamsters Pension and Health & Welfare Funds.
In addition to his technical articles, Mr. Maturi has published a novel, As Life Passes (Cavizzana Press,
Nov. 1981), and several short stories during the past year.

GRAPH A:

GRAPH B:

Figures Copyright (c) Technical Analysis Inc. 5