Tuesday, August 18, 2009

Charting Around the Gold World

For background on my thoughts regarding the ongoing Gold stock correction, see here. I don't think the Gold mining sector or Gold price is done correcting. We are getting close to a tradeable bottom in the senior Gold stock indices, however, using the GDX ETF. I have given up trading the Gold price and I simply try to accumulate physical Gold to be held outside the financial system whenever a nice correction occurs (assuming I have capital to invest when it occurs...).

We'll start with the physical metal, but keep in mind that Gold miners may or may not leverage the gains in the price of physical Gold depending on where we are in the stock market cycles and depending on how Gold is doing relative to other commodities and the costs of Gold mining. Individual firms also move individually and may or may not follow the herd.

Here's a 2 year daily Gold price chart and my thoughts:

Again, I don't trade the Gold price, I try to accumulate physical Gold on weakness. For trading, I use the Gold mining stocks. The most tradeable senior Gold mining index is the GDX ETF. My view hasn't changed on targets and parameters for buying this index if this is one's preferred investment vehicle. I wouldn't be interested in going long GDX if it doesn't reach down to 32 and I would prefer a spike panicky low down to the 30 range.

If GDX doesn't get to a low of at least 32, then I think a lower low will occur in the fall in the mid-October to early December time frame. If we get a good spike low, then this will likely be "the" low for this intermediate-term correction. Remember that my view is that Gold mining stocks in aggregate (i.e. Gold stock indices) made their cyclical lows in the fall during the Panic of '08. They won't be making lower lows than the fall of '08 lows, while I believe the general US stock market indices will be making new lows in the next year.

For a more individualized analysis of Gold stocks, here are some charts I think may be close to a good buying point with my comments. All the charts are 1 year daily charts unless otherwise specified. For today, some medium to large sized Gold miners:

Goldcorp (ticker: GG):

Rangold Resources (ticker: GOLD) - 2 year chart to show breakout to new highs:

Kinross Gold (ticker: KGC) - [Disclosure: I own this stock]:

Agnico Eagle Mines (ticker: AEM):

Royal Gold (ticker: RGLD) - WARNING AND DISCLOSURE: I am heavily long this stock and remain bullish on it despite it failing to move higher when I asked it to. Anyhoo:

There are obviously other senior and medium-sized Gold miners out there, but other charts I looked at either didn't look as close to a buy point to me or resembled the charts shown. Keep in mind this is only my opinion and I am not recommending anyone invest in anything. Technical analysis can be used to determine buy points for stocks you want to invest in or can provide potentially lower-risk buy points for a trade.

We are still in a nasty bear market that is far from over. There is no rush to get bullish on Gold stocks here with the general stock markets in nose bleed territory, as bad downdrafts in the stock market spare few equities. Patience is key. By next spring, Gold stocks will be the darling sector and massive gains will be realized. Any intermediate-term bottom here in Gold stocks may be re-tested if the fall bear leg down in general equities turns nasty (and there's a decent chance of this).

The junior Gold mining sector is completely different and many of these stocks have already started to or will soon move significantly higher regardless of what's going on in the general markets or senior mining stocks based on positive news like mergers, acquisitions, discoveries, permits granted, starting production, etc. Of course, they can also move significantly lower when bad news comes out.

Tomorrow I will post some more junior Gold mining charts that look to me like they are near buy points. Cheers!

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