Gold broke above both daily and monthly resistances, and we could witness a further strong move to the upside. In this post, I would like to find out if there are gold stocks with upside potential to follow the strengthening metal using my unique selection criteria.
When you buy stocks, you become shareholders of the company participating in the equity. That is why this time I decided to sort the gold stocks by ROE (return on equity) and chose the top 5 (in the table below) to analyze. The range includes stocks with a market cap over $300 million.
Table 1. Top Gold Stocks By Return-On-Equity (ROE)
Image courtesy of finviz.com
These top stocks tickers are ABX (Barrick Gold), SBGL (Sibanye Gold), IAG (IAMGOLD), GSS (Golden Star) and HMY (Harmony Gold Mining).
Chart 2. Top Gold Stocks By ROE Vs. Gold
Chart courtesy of tradingview.com
This chart above started from the 15th of December 2016 when the previous major low in gold was established at the $1122.57 mark. Only two stocks have performed better than gold: IAG (purple) with a hefty 91% gain and the largest gold stock ABX (red) with a 22% gain. The people’s favorite ABX is the most stable stock as it goes hand in hand with gold and has sound fundamentals overall. The metal (black) itself scored 14% for the same period shaping the “waterline.” Three stocks sank under the waterline: SBGL (orange) with -6%, HMY (green) with -6% and the top loser GSS with -9%.
In the separate charts below I analyzed the underdogs to see if there are any good setups to profit from their lagging performance.
Chart 3. SBGL Weekly: Breakup
Chart courtesy of tradingview.com
Sibanye’s price has moved in a bullish manner above the red resistance line, which kept the price underneath it for more than a year. The recent weekly candles are clean and mostly bullish shaping the sharp angle of the upside move which is a good signal.
I added the gold graph (light orange area) as a background to highlight the comparative performance. For the past two years, both instruments moved together and only this year the stock price couldn’t climb higher to follow the gold. This divergence grew and though the price has an ample bullish opportunity if it would catch up with the metal’s price as highlighted in the blue up down arrow. Friday’s close price of gold corresponds to $16.79 in the SBGL price. The nearest strong resistance is located at the $10.81 mark (this year maximum).
Chart 4. HMY Weekly: Consolidation
Chart courtesy of tradingview.com
The next is Harmony Gold (HMY), and the chart outlook is not as bright as SBGL’s prospects. Currently, the stock price is in a consolidation, which is highlighted with the diverging black lines. It could be a harbinger of further weakness as the previous move was to the downside.
It is better to avoid this stock at this time and wait for it to become cheaper to offer more opportunities for the buyers.
Chart 5. GSS Weekly: Another Drop In Progress
Chart courtesy of tradingview.com
This chart reveals why the Golden Star underperformed gold the most. As you can see for yourself, the flag-type consolidation is already over, and the price breached downside support and could drop further to the lower side of the red downtrend. It could be a massive price collapse.
So this stock doesn’t look like a great bet either.
Only one stock (SBGL) out of 3 laggards has a clean bullish behavior. I would add Barrick Gold (ABX) to the short list as it moves with gold without lags and often outperforms the metal.
IAMGOLD Corp (IAG) wasn’t added as it is extremely overbought compared to the metal.
In the table below I added more fundamentals of SBGL and ABX for you.
Table 6: Sibanye Gold and Barrick Gold fundamentals
Image courtesy of finviz.com
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Aibek Burabayev
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.
interesting news and without losing time time to come up.
thanks and regards,
roland
there's a story out today that a 2M share block of gold futures was bought over the weekend. - this corresponds to your comment above: "we could witness a further strong move to the upside";
Disclaimer - it wasn't me.