By Zak Mir.
Before I go into the technical analysis of my chosen three gold stocks today, I need to make a confession. Despite most of my colleagues here at SpreadBet Magazine being gold bugs and keen on gold mining stocks, I have to admit I am not a total believer in the fundamentals behind this strategy.
While I agree that the current Fiat system of currencies looks in serious trouble in the long term, attempting to predict exactly when this might collapse looks fraught with difficulty to me. The lengths central banks have gone to to shore up the system have been incredible. Although they have not managed to solve any of the underlying problems, they have managed to preserve people’s confidence in the viability of our current economic existence – at least for the time being.
To thrive gold and gold mining stocks need increased inflation and geopolitical problems. They need fear. Even though the world has seen its fair share of troubles over the last few years (e.g. the Arab Spring) these have done little to arrest the long term decline in the gold price. As for inflation, this too has remained benign and perhaps the biggest threat, at least according to the official statistics, has been deflation. Whether or not you believe the official view of inflation, this is what currently leads prices. With so much wealth destroyed by the Financial Crisis and the deflationary presence of the Internet still exerting great force, my guess is that we will continue to see downward pressure on consumer pricing for many years to come.
So, with all my macro theorising out of the way, this brings us to the current technical positions of my trio of chosen gold stocks. I believe this group is a good baramoter for the rest of the sector and I start with Randgold Resources (RRS):
As far as RRS is concerned this is a stock which has specialised in delivering false dawn jumps to suck in the bulls, only to chew them up and spit them out soon after. This pattern has repeated itself each and every month since July, in one way or another. While there may be confidence in a sustained recovery here, perhaps the best approach is to wait for a solid technical buying signal. Only a weekly close above the 200MA would suffice for me. I say this even after last week’s spectacular unfilled gap to the upside.
I had planned to write about African Barrick Gold (ABG) next, but young Mr Picarda covered this stock with great panache a few days aog. Therefore my next stock to examine is Polymetal (POLY):
I choose POLY on the basis that the share price is near to the floor of a rising trend channel, dating back to June. If you are a fan of this stock, you can buy it now and limit your risk to the floor of the channel/November intraday support of 560p. Personally, I would like to see a momentum buy signal on POLY, such as a clearance of the 10MA, which is now at 596p. Such a move would make me more confident that the share price will be able to cling onto any gains it makes. Above the 10MA, my next target would be the 50MA at 644p, within a 2 to 4 week timeframe.
My final choice is Petropavlovsk (POG). In many ways this stock is irresistible because when it moves it really moves, as most traders of it will know all too well:
What is intriguing about the current set up for POG is that the stock is all about the 50MA at the moment at 79p. The bulls are looking for an end of day close about this level, but so far it has been close but no cigar. If POG does manage to clear the 50MA, then the next target within June’s rising trend channel would be a minimum retest of September’s intraday peak of 88p.