Friday, April 15, 2011

When Will Gold Miners Be Invited To The Party?

With the price of gold hitting new all-time highs on an almost daily basis, you'd have to assume that the gold mining stocks have been performing just as well right? Well, no. The gold miners have definitely been lagging.

The Market Vectors Gold Mining ETF (GDX) is currently trading around the same level it was back in early November, when the price of gold was around 1400. Since then gold has rallied to a high of 1487 today (+6%) and GDX has gone nowhere, not only lagging the gold price, but equity shares in general. The S&P 500 has rallied about 8% over the same period.

I believe that the timing is right for gold mining shares to outperform. Equities keep going up. Earthquakes? Tsunamis? Doesn't matter. Stocks just want to go up.

And there's no indication that the move in gold is anywhere near over just yet.

One could go out and buy the GDX to play an expected rise in gold mining stocks. Alternatively you could pick a few individuals names that you like and buy those instead.

I bought some Barrick Mining (ABX) today. The weekly chart has been slowly coiling and looks ready for a breakout on a move above 55. The other thing I like about Barrick is that they own some oil production as a hedge against mining costs. So oil at 110 won't affect them as much as it might other miners in the sector.

The share price technically could pullback as far as 48.50, but I think the more likely move is to make another attempt at 55. A break of which would open up a move to 75 a share. I am long from 53.50 area and will stop under 48.50. I may look to add to the position on the break of 55 as well.

I am also looking at names like Novagold (NG) and Claude Resources (CGR) as possible plays on a dip.

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