Gold and gold miners are gaining ground in reaction to the North Korean crisis as well as the continued failure of world economies to generate significant inflation, despite U.S. interest rate hikes. These tailwinds are likely to continue into 2018, underpinning recovery rallies that could eventually reach two- or three-year highs. Fortunately, the upside is developing at a relatively slow pace, giving late-to-the-party bulls plenty of time to get on board.
The gold mining sector has carved dozens of low-risk buy patterns in recent weeks, offering a broad array of short-term trading choices. At the same time, the Vaneck Vectors Junior Gold Miners ETF (GDXJ) has lifted above the 200-day exponential moving average (EMA) for the first time since April, highlighting rapid improvement at the low end of the capitalization spectrum. As a result, buying the fund or a basket of low-priced components with room to run could offer the strongest returns. (See also: GDXJ: Market Vectors Junior Gold Miners ETF.)
Eldorado Gold Corporation (EGO) stock topped out just above $20 in 2010 and tested that level one year later, ahead of a steep decline that ended in the first quarter of 2016 when it found support at a 13-year low under $2.00. It rallied above $5.00 in the second quarter and stalled out, building a small double top and breaking down in a decline that undercut the 2016 low in August. Committed buyers then emerged, triggering a 2B buying signal that denotes the failure of bears to defend a new resistance level.
The stock has been grinding higher in the past five weeks, while the monthly stochastics oscillator remains stuck at the most extreme oversold level since 2013. It will take little additional upside to flip the indicator into a buying cycle that supports continued gains into the $3.00 to $3.50 resistance zone. Market players may wish to withhold long exposure until the bounce clears the top of the unfilled July 31 gap at $2.23. (For more, see: Do Gold Miners Need to Look to Emerging Markets for Growth?)
Yamana Gold Inc. (AUY) shares topped out at $19.93 in 2008 and sold off to $3.31 during the economic collapse. The stock returned to resistance in 2012 and completed a double top, ahead of a severe decline that continued into the January 2016 13-year low at $1.38. The subsequent recovery wave stalled at a 21-month high in the third quarter, giving way to a slow-motion pullback that may have ended at the .786 Fibonacci sell-off retracement level in July 2017.
A bounce into September broke a six-month trendline of lower highs, improving the bearish technical tone while generating a test at the 200-day EMA. A breakout above that level would mark important progress that generates the next wave of buying signals, in turn favoring upside into the 2017 high at $3.65. Meanwhile, the monthly stochastics oscillator has now lifted into its first buying cycle since September 2016, predicting another six to nine months of relative strength. (See also: Yamana Gold to Spin Off Brio Gold Subsidiary.)
B2 Gold Corp. (BTG) came public on the U.S. exchanges at $1.25 in 2010 and lifted in a steady uptrend that ran out of gas near $4.50 in 2011. It built a two-year triple top at that level and broke down, entering a volatile downtrend that posted an all-time low at 60 cents in January 2016. The subsequent bounce displayed excellent relative strength into the third quarter, lifting the stock within one point of the 2012 high.
It then eased into a symmetrical triangle pattern that is still in force nearly 13 months later. A rally above $3.65 is needed to clear resistance, while selling waves need to hold range support near $2.20. The stock is now trading 60 cents or so above that level, offering a low-risk entry that could generate a sizable profit before a breakout that tests 2012 resistance. On-balance volume (OBV) has held close to the multi-year high throughout the consolidation, offering a stiff tailwind for an eventual uptrend. (For more, see: B2Gold Stock Upgraded at Dundee Capital.)
The Bottom Line
Junior gold miner stocks are ticking higher, with geopolitical tensions and weak inflation underpinning strong buy bids. These lower-priced issues may offer superior returns in this scenario, posting the next rally legs in long-term recovery waves. (For additional reading, check out: Strike Gold With Junior Mining.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>