by Serge Berger | March 14, 2014 7:56 am
With gold prices up roughly 14% year-to-date, it should be no secret nor surprise that gold mining stocks are also showing some real signs of life for the first time since 2011 or 2012, depending on which single name stocks one looks at. Yet when I made my weekly round with my circle of investment professionals, the prevailing tone remains one of skepticism on anything regarding gold on the long side.
Compare that to the resounding upbeat tone those same investors had in 2011 regarding the yellow metal, and understanding investor psychology goes a long way in getting a feel for the path of least resistance in risk assets (or safe-haven assets, for that matter).
When gold rallies, the positive correlation between it and gold mining stocks, as well as the correlation among gold mining stocks themselves, becomes even firmer. Furthermore, the upward pull of gold then also tends to at least temporarily ignore any potentially negative headlines around any single gold miner.
Case in point: On Feb. 20, Newmont Mining (NEM) reported fourth-quarter adjusted earnings of 33 cents per share vs. estimates of 44 cents. This EPS figure was lower by 70% year-over-year, and revenue also came in weak. NEM stock traded lower initially, but quickly caught itself and since then is up more than 8%. In other words, if it hadn’t been for gold pushing higher, NEM stock could have easily traded much lower.
So, in times of rising gold — particularly if it coincides with marginally slowing economic growth and headlines of geopolitical issues (Ukraine/Russia) — in my experience, it is best to put aside any staunch fundamental opinions on mining stocks and let the momentum be your friend for a bit.
Considering the positive correlation among gold mining stocks, it also shouldn’t be surprising that a good amount of them (at least the liquid names with respectable trading volume) are currently sporting very similar patterns on their respective charts.
The two big, liquid gold mining stocks I am watching closely are Barrick Gold (ABX) and the aforementioned Newmont Mining (NEM). Both stocks are positioned decidedly bullishly and trading in tight patterns of higher lows and higher highs that often lead to plenty more upside.
ABX stock in early February broke past its black resistance line dating back to the first quarter of 2013 and, after retesting it from the top earlier this week, has resumed its upward move. Through a multimonth lens, ABX stock should now have upside potential toward the $23 area.
NEM stock doesn’t look much different and currently is trying hard to overcome its lateral resistance level from January. The stock is now again trading above its 100-day moving average (blue) for the first time since last August and looks to have upside toward the 200-day MA (red) in coming months.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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