The graphs are out, the gloves are off: gold bugs reached fever pitch this week as the trends for gold, silver and junior gold stocks formed a tapering pennant that is like a red rag to a bull. Talk that the gold price could break out of its long term trend is particularly exciting for junior gold mining stocks, with many commentators finding these undervalued even at present levels.
In his latest analysis on Investing.com, Chris Kimble looked at the relationship between junior miners and senior miners, saying that the charts show a crunch point is approaching and he believes the outcome could be a very positive signal for the mining sector in general. At the same time, gold and silver prices are also pushing against their recent resistance levels.
“Since the highs in 2011, gold, silver and the miners have struggled to break above falling resistance. Each is now testing a very important falling resistance level at the same time.
If these resistance lines are broken to the upside, they should attract buyers. Very important price tests are in play for these assets,” said Kimble.
Jordan Roy-Byrne, writing on Goldseek, also awaits a breakthrough, saying that gold is in a much better position both fundamentally and technically than it was in 2016, 2017 and 2018 - but the price must get over ’the wall’.
“Sure, closing above $1300 was a breakout for gold. But that’s hardly significant. If and when gold surpasses the wall (resistance at $1350-$1375), it will mark a real breakout,” he said.
In contrast to the gold price, the HUI ‘Gold BUGS’ index shows that gold mining stocks have been on a downward trajectory since at least late 2016 - and arguably much longer. Now there are signs that this graph is finally turning positive, with all the upside potential implied by years of underperformance in relation to gold (and indeed almost everything else).
Rick Ackerman highlighted this phenomenon in his Rick’s Picks column, saying that an initial ‘pleasant surprise’ could signal a concerted upturn towards 317.56 “that presumably would usher in a new era for the mining industry”. The HUI currently languishes at around 166, so investors in gold mining stocks would already have done nicely at that point.
If all that talk of gold mining stock rallies and the feverish buzz coming from the gold bugs themselves has piqued your interest, the talk of the town this week among the junior gold stocks was Australia’s Echo Resources. Following an announcement of “outstanding” drilling results at its Mt Joel Gold Project, a number of analysts hailed the miner as the hottest pick in the sector - at least ‘Down Under’.
Emmanuel Datt, of Datt Capital, gushed: “We believe that it [Echo] provides one of the best exposures to ASX-listed gold development plays, and is compelling value at the current market value of around $100 million. It is our opinion at the current gold price, the company is worth significantly more; especially considering its project economics, strategic assets and exploration potential.“
And we all know what people are saying about the current gold price. However Rick Rule, ever ahead of the curve, didn’t seem to be interested in marginal moves and was this week singing the praises of another metal.
He said: “A doubling in the price of palladium would have no measurable near term impact on demand, because $150 of palladium allows you to sell a $40,000 car. The upside potential in the event of a supply disruption is amazing.”
This week it was the junior gold mining stocks that led the way, finding favour as talk intensified around the gold price and breakouts were anticipated. But the mining stocks investor is spoiled for choices going forward - gold, palladium, exciting junior miners: all while iron ore approached two-year highs.