Gold stocks are getting back in the game.
Compared to the rest of the commodity-related stocks, the gold sector has been relatively quiet since late 2006. However, there have been some bullish technical improvements recently, and the long-term chart for the Philadelphia Gold & Silver Index (XAU) looks ready to resume the long-term uptrend. We'll tell you how you can play it, but first some background on the yellow metal.
Philadelphia Gold & Silver Index
Gold prices have been consolidating since the $720 highs reached in early 2006, but they have recently retested the weekly uptrend line, and the metal is now at an inflection point.
The bullish catalyst that may push gold into resuming the long-term uptrend is the dollar. The slide in the dollar is accelerating, and because gold and the dollar have an inverse relationship, we should see the weakness in the dollar as a bullish development for the price of gold.
If the price of gold starts to rally, the gold-mining stocks should move higher. If you're buying a mining stock and betting on the price of gold, make sure the miner is not hedged. Hedging has hurt stocks such as
and prevented them from benefiting from the rally in gold prices.
Here are a couple of bullish ideas in the gold mining space.
is a Canadian gold miner that has made some bullish technical changes recently. The stock has been pulling back since the beginning of the year, but last week we saw an upside breakout from the downtrend channel. A move like this tells us that the bulls are going after this name.
AEM needs to break out over $45 to reassert the primary uptrend, but aggressive traders can go ahead and get long the stock here. A move below $36 would suggest that the bullish energy has dissipated, and we would use this level as a stop-loss.
Another interesting name in the gold-mining group is
. Eldorado Gold is a mid-cap company with mines in Brazil, Turkey and China. The stock has recently broken out to the upside of a bullish consolidation pattern in the daily chart, and confirmed with volume.
The stock has a bullish uptrend in place in the daily and weekly charts. EGO is showing good support at the $6 level, and we would view any pullback toward that level as an opportunity to get long. The combination of daily and weekly support between $5.50 and $6 is presenting a solid risk/reward proposition for traders in the stock.
At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.