Where I See Opportunity in Gold

The weakening U.S. dollar benefits gold stocks like NEM and AEM

Gold is viewed as a safety investment in times of heightened uncertainty. As geopolitical tensions escalate from Syria to North Korea, the precious metal is trading at a five-month high.

The dollar has also helped boost gold prices, as the U.S. Dollar Index suffered its worst trading day in four weeks yesterday following comments from President Trump about the greenback being too strong. Remember, a weaker dollar benefits gold.

But, even as the metal has been breaking out recently, many related stocks continue to trade below their February highs, and a handful of the big names are stuck between their 50- and 200-day moving averages. Take a look at the Market Vectors Gold Miners ETF (NYSEARCA:GDX), for example. This ETF has been trading between the two indicators for much of this month, but I suspect it’s on the verge of making a move that will determine the direction of the entire sector.

A rally above the 200-day moving average (the red line) would be bullish, as it would signal that the miners are joining gold in the breakout phase. On the other hand, a failed attempt at resistance would suggest that the short-term rally in the precious metal is over. I suspect we’ll see the former, in which case I would view the entire sector as a buy.

A few well-known gold stocks are showing similar trading patterns on their chart. I wouldn’t buy any just yet, but let me share what I’m looking for:

Newmont Mining Corp (NYSE:NEM) is the largest gold miner by market capitalization in the U.S. The stock rallied through its 50-day moving average earlier this week and is currently trading at a one-month high, yet it still has another 7% of headroom before even testing its 200-day moving average as resistance.

Agnico Eagle Mines Ltd (USA) (NYSE:AEM) has already covered the ground between the two indicators and is currently trading at the upper end of the range near the 200-day moving average (the red line).

A breakout above $48 would be a buy signal, as it would open up the chart for a nice run higher. On the downside, AEM has support at the 50-day moving average (the blue line) around $44.75.

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AngloGold Ashanti Limited (ADR) (NYSE:AU) has a very wide range between the two moving averages. The stock is currently trading in the middle of the two indictors, giving it roughly 7%-11% of wiggle room in either direction.

While there is the chance for upside, notice that the relative strength index (RSI, at the bottom of the chart) has recently crossed into overbought territory. A stock can trade at these levels for some time before changing direction, but odds are that AU will have trouble breaking out in the near term.

The chart for Gold Fields Limited (ADR) (NYSE:GFI) is very similar to that of AU, with a range of more than 20% between the 50- and 200-day moving averages. GFI stock is trading near the upper end of the range following Thursday’s strong momentum, but considering it is closing in on overbought territory, I expect it to continue trading between support and resistance for the time being.

Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt is currently in the midst of an exciting launch centered around his trademark three-prong investing approach that targets the mega-trends old Wall Street is missing out on. His next-gen investing strategy is delivering enormous profits in stocks and ETFs. Click here for more information on his latest venture.


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