Zak Mir on Gold Bugs – Have we seen the selling climax?

From my experience of the Editor of Spreadbet Magazine, he is that “cuddly”, that even the financial markets dare not go against his judgement of where the price action should be for too long!! Therefore, it will be very interesting to see whether his hint to me that Gold and Gold stocks are set to reverse to the upside quite sharply will pan out..? Actually, my view was that the selling climax for the whole asset class was the flush out after it was revealed on February 15^th that George Soros had lightened his yellow metal exposure. This was old news referring in fact to Q4 2012, and therefore the view I have now is that all the price action below the intraday low of February 15^th  at $1,598 was, and is, a bear trap buying opportunity. Check out my Technical Triggers Guide at the bottom of here for an explanation as to what a “bear trap” is.

Presumably however, some traders would like more than this particular conspiracy theory type angle. Well, looking at the 2013 view of the Gold Bugs Index it can be seen that there were no less than 5 unfilled gaps to the downside going into March. However, since this month began there has been clear bullish divergence in the RSI window between the February and March price lows, as well as an inverted head & shoulders formation. I would  suggest that an end of day close back above the former February intraday low of 355 is enough of a buy signal to back the RSI divergence up and target the 50 day moving average at 379, initially for April perhaps.

On to the key Gold stocks, and we have a company that has been something of a bête noire ever since its IPO three years ago, what with fuel theft issues and its employees being somewhat grumpy and so striking, despite having three times the Tanzanian minimum wage lavished upon them! African Barrick Gold (ABG) on its daily chart looks to have hit the bottom of my subjective descending price channel from 2011 at 200p, as well as flashing a buy signal via the RSI support line from November. This could be enough to get the stock back to the 235p 20 day moving average zone but, to suggest that this is the end of  bruising bear run appears quite premature at this stage. Clearly, an end of day close back below 200p could be seriously negative in my (if not the editors!) opinion.

Petropavlovsk (POG) has also delivered what appears to be its own selling climax manoeuvre yesterday with the 205p intraday low. This seems to be worth trading on the bull tack on the basis that this not only represents the floor of a May descending price channel, but also that the stock has a falling RSI support line which has worked to deliver intermediate bear market rallies. The view is that even if this is not the moment of salvation for the longs,  we could still be treated to a squeeze towards the 20 day moving average at 251p before any fresh breakdown emerges. As can be seen from the daily chart here over the past year, even the worst sell off’s for Petropavlovsk have tended to be followed by rebounds of 10% – 20% in share price terms. With results tomorrow we’ll see if I have egg on my face here or in clover…

Finally, the minnow of the Gold stocks bunch here today: Avocet Mining (AVM). The first thing here that I would confess, is that this is not a situation I would have touched with a barge pole going into the beginning of this month. I say this on the basis that the stock had suffered two unfilled gaps to the upside. However, the lack of any break of key 18p support, and the latest unfilled gap to the upside does at least tempt a risky bottom fish while there is no end of day close back below the gap at 19p. All the while though, one should keep an eye on the RSI uptrend line I have drawn through the 30 level given that as little as an end of day close back below this could be the start of a new leg down. In the meantime a retest of the recent 23p plus resistance may be on offer for April.