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These 3 Gold Stocks are Gaining Momentum but Still Look Cheap

James Dennin, Kapitall: Gold stocks are starting to rebound after hitting a 30 year low, so we screened for growth plays in the sector. 

Gold prices are falling again today, calling into question some analysts who argued that a rebound was all but assured given the metal's 30-year low in terms of prices. However the US dollar has performed unexpectedly well this week, and the brief rise in gold prices last week dampened some demand in Asia.

As tapering begins, the dollar will (ideally) rise relative to other currencies, and traditionally this works against gold stocks. However, since tapering was expected to begin as early as last fall, it is possible that an end to the policy has already been factored into the price of gold.

Read more on Gold from Kapitall: 5 Gold Stocks to Consider as Mining Companies Hope for a Rebound in 2014

So for investors who are assuming that the stock market isn't about to make record-breaking gains again in 2014, gold could become a much more desirable asset class. 

Investing ideas

We decided to find gold stocks that might be starting to rally. Gold and mining stocks often pursue other ventures, but the earnings of these stocks are still heavily tied to the price of gold worldwide. With that in mind we developed a screen on gold mining stocks looking for signs of momentum.

First, we didn't want to include penny-stocks, micro-caps, or anything priced below $5. Already this made the list rather small, as many gold stocks have lost over 50% of their value this year. 

Then, to look for signs of momentum we screened for stocks that are trading above their  simple moving averages for the last 20 days (MA). 

These are stocks whose current price is above the average price for the stock in the last 20 days. While all of these gains are modest, below 10%, they are still a possible sign that the company is recovering. And since we also wanted to make sure that these stocks were still cheap, we further limited our list to stocks with a price-to-equity ratio below 20.   

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