In this post, I would like to share with you the comparative dynamics of gold and top gold stocks starting from the date when the recent local bottom of gold was set at $1241 on the 7th of October, 2016 to see how top gold stocks reacted to the recent gold reversal.
Chart 1. Gold And Top Gold Stocks: Not All “Birds” Flew To The North
I put the chart the gold together with the 5 top gold mining stocks by market cap, which I started to cover this August. These are (ranked by market cap):
1. Barrick Gold Corporation (NYSE:ABX) (red)
2. Newmont Mining Corporation (NYSE:NEM) (blue)
3. Goldcorp Inc. (NYSE:GG) (green)
4. Agnico Eagle Mines Limited (NYSE:AEM) (purple)
5. Randgold Resources Limited (NASDAQ:GOLD) (chocolate).
Gold (black) is up almost 4% from the local low. Almost all of the stocks took off with the gold except one stock, which has negative dynamics so far, it’s the Randgold Resources Limited. It’s at the end of the list both by market cap and by performance. Such a natural correlation also has been seen in the performance of the flagship company from the list - The Barrick Gold Corporation, which has the best dynamics of 16% so far. But this order hasn’t worked with other companies: Agnico Eagle Mines Limited finished 2nd (rank #4); Newmont Mining Corporation finished 3rd (rank #2) and Goldcorp Inc. finished 4th (rank #3). AEM topped its ranking.
The mining stocks are very sensitive to gold’s price dynamics and the 4% rise in the metal’s price brought from 8 (double) to 16% (quadruple) gain in the stock prices. Now I am puzzled with the poor dynamics of Randgold Resources and I would like to share with you the separate chart of this company, but I would like to review the leader first to see if we can find something tradable.
Chart 2. Barrick Gold Daily Chart: First Breakup
The assumed drop in the price after consolidation proved to be right as highlighted by the gray arrows, the price almost reached the downside support and stopped above the 50% Fibonacci level at $14.69. The reversal also went up by direction of the earlier put arrow.
I added the black dashed resistance line with three touch points; the last touch was on 25th of October when the trendline rejected the attempt to break to the upside. At the start of November, this resistance was finally broken and the price is now consolidating. We shouldn’t rule out a pullback to the broken trendline before upside continuation.
The AB/CD segments (blue) on the chart show that the minimum target of AB=CD was hit four months ago in July. The next Fibonacci ratio is 1.272; this could be a new upside target, which points at the $25 level. I also added further ratios at 1.414-1.618 to give you a full perspective.
I put the red dashed horizontal line at $16.25 to highlight the first support where you should think of limiting risk once you are long in this trade.
Chart 3. Randgold Resources Daily Chart: Sink Or Swim
The Randgold chart shows a totally different story compared to ABX. It has a sharper angle of the drop in consolidation and hence the deeper level of correction, which dragged down the stock in the comparative performance chart (Chart 1). The price reached the 61.8% Fibonacci retracement level at the $82 level. Then we saw a quick reverse upside, which scored almost $12. But it was short-lived strength; the stock couldn’t break above the resistance line and the GOLD (Randgold) dropped down losing almost all gains.
The leaders show the way and lead the crowd, the flagship Barrick Gold already broke above the resistance and is ready to climb higher. We can expect that other stocks would follow ABX on its path to the upside. I think there are a lot of margin hunters who also see this misbehavior of Randgold and would take a chance to earn on the industry correlation move. The break above the $94 mark would confirm the trend reversal.
The AB/CD segments (blue) point at the $129 level as a target for the upside move (where the AB=CD). It’s almost a 37% to gain from the break point ($94). For comparison, the ABX has the potential of 38% from the current level (it already broke above the resistance). For fairness sake, we should bear in mind that the target for ABX was calculated as CD = 1.272 of AB and the GOLD has only the even ratio (AB=CD) and with 1.272 ratio it would gain more than ABX.
A drop below $82 would bring more weakness to Randgold.
I added some fundamentals of these stocks for your information.
Table 1. Fundamentals
Chart courtesy of finviz.com
INO.com Contributor, Metals
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.