Tuesday, August 27, 2013

Gold and Precious Metal Stocks Have A Little Room To Run

But don't get too complacent. The move off the bottom in gold and gold stocks has occurred with little pause. More so, the rally comes after a nearly 8 month bear market. I would expect sellers to come into the market at some point, as those investors who were 'trapped' at higher prices sell into the strength.

That said, the strength in the chart of Royal Gold (ticker RGLD) stands out a particular positive. I have stated this before, but RGLD's business model is one most levered to changes in gold prices, as the company essentially acts as gold broker under longer contract on the cost side of the equation. Lets look at the chart below.

Albeit on lower relative volume, RGLD's share price is trading up into the April downdraft and has broken the 200 day moving average. Additionally, the MACD continues to trend higher while the RSI remains below the overbought level. All in, this suggests to me the top of the March/April trading range is in play.... or roughly $71 per share versus the $65 per share price currently.

More so, RGLD's stock price is acting stronger than both the broader precious metal mining names or that of the yellow metal itself.

 Market Vectors Gold Mining Index ETF- GDX

Gold Trust SPDR- GLD

My research has shown that the price of the gold equities tends to lead the price of gold. The relative strength in RGLD indicates, in my mind, the rally in gold and gold miners will continue here in the short-term. The same technical dynamics seen in RGLD are present in the GDX and GLD. Both have rising MACDs with money flows into the investments. Additionally, neither is overbought on the RSI. We will likely see a few more points to the upside in gold and miners before sellers once again begin to take over.

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