Gold Stocks Lag the Breakout in Gold Prices

NEW YORK (TheStreet) -- On Sept. 6, nearly a year ago, Comex gold traded to an all-time high of $1923.7, and then the bubble burst.

Gold on Sept. 26 tested an intra-day low at $1535.0, which was just above its 200-day simple moving average. A slightly lower low at $1523.9 was set on Dec. 29. The price rebounded to a 2012 high of $1792.7 on Feb. 28, but weakness since then took it back down to $1526.7 the Troy ounce on May 16.

On May 16, I correctly timed the bottom for gold in It's Time to Buy Gold for a Trade. More recently, I have been talking about gold stability influenced by my annual pivot at $1575.8.

I have been posting stories on Fridays covering the weekly closes and scenarios for the U.S. capital markets, including gold, and reported that the weekly chart for gold became positive on Friday, July 27. My initial upside targets were my semiannual pivot and risky level at $1643.3 and $1702.5. Gold is within this range this morning.

On Wednesday, gold closed above its 200-day simple moving average at $1649.1 for the first time since March 27, and the breakout continued this morning with a intra-day high at $1669.5.

So today, I focus on "buy and trade" strategies for gold stocks, which lag their 200-day simple moving averages. I also profile SPDR Gold Trust ( GLD), which is a cost-efficient way to trade the market for physical gold. GLD tracks gold futures better, as it closed Wednesday above its 200-day simple moving average at $160.25.

Reading the Table

OV / UN Valued -- The stocks with a red number are undervalued by the percentage shown. Those with a black number are overvalued by that percentage, according to ValuEngine.

VE Rating - A 1-Engine rating is a strong sell, a 2-Engine rating is a sell, a 3-Engine rating is a hold, a 4-Engine rating is a buy and a 5-Engine rating is a strong buy.

Last 12-Month Return (%) - Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return - All stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: the price at which to enter a GTC limit order to buy on weakness. The letters mean: W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: a level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: the price at which to enter a GTC Limit Order to sell on strength.

Analysis of the Gold Stocks

Looking at the overvalued and undervalued data, all six of the gold stocks are undervalued, with Kinross Gold ( KGC) the cheapest at 53.2% undervalued.

Five of the six gold stocks have a "4-Engine" buy rating. Harmony Gold ( HMY) was rated a buy until this morning, when the stock was downgraded to a "3-Engine" hold rating, according to ValuEngine.com.

All six gold stocks lagged Comex gold and GLD, which are down 13.3% and 13.0%, respectively, over the last 12 months. KGC is the biggest loser, down 49.7%.

All of the gold stocks are projected to be higher over the next 12 months, led by Barrick Gold ( ABX), which is projected to rise by 8.1% over the next 12 months.

The P/E ratios are reasonable to cheap at between 8.4 times earnings for Gold Fields ( GFI) and 11.9 times for Newmont Mining ( NEM).

The 200-day simple moving averages are reasonable upside targets for the buy-rated names in anticipation that, as long as gold futures and GLD stay above their 200-day SMAs, there will be strength in gold shares towards their 200-day SMAs.

At the time of publication, the author had no positions in any of the investments mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

More from Opinion

7 Takeaways From Google's $550-Million Investment in Alibaba Rival JD.com

7 Takeaways From Google's $550-Million Investment in Alibaba Rival JD.com

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD