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5 Must-See Charts For Gold Bugs

Posted: May 26, 2009 15:24 PM by Joey Fundora

Tickers in this Article: UUP, AMEX:SA, AUY, GG, GDX

Gold stocks have been on fire recently, with most moving up over 30% in the last month alone. The U.S. Dollar Index has been dropping over the same time, breaking under its 200-day moving average in early May. It also broke under a couple of different rising trendlines and broke under a prior pivot low. It also appears to have set a lower high as well. While the dollar is oversold, it has been showing weakness for the last few months and is still in a secular bear market. The Federal Reserve has been working overtime in an effort to stabilize the economy, and it appears that its actions are finally starting to reignite inflation concerns. While there is much doubt on what the long-term impact will be, the dollar is starting to show weakness and this bodes well for commodities.

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The U.S. dollar and commodities are inversely related, and thus commodities typically rise as the dollar falls. Gold the asset, has recently cleared a consolidation channel it was trading in, and also set a higher pivot high. The gold miners have been benefiting from the rise in gold, and have also set higher pivot highs. The Market Vectors Gold Miners ETF (NYSE:GDX) has rallied over 250% from its October lows, and has rallied over 30% in the last month. It recently cleared a base it had been building for a few months, and it's possible that GDX is getting ready to start another leg up.

Goldcorp, Inc. (NYSE:GG) is one of the largest holdings in the GDX ETF, and has a similar chart. It has rallied strongly from the October low of $13.79, and also over the past month, just clearing its prior pivot high. While GG is showing strength, it is also overbought and the recent rally has occurred on declining volume. GG pulled back into its prior base on its last breakout, and could repeat this feat again. (For more, see Using Technical Analysis In The Gold Markets.)

Yamana Gold, Inc. (NYSE:AUY) is a gold miner that is looking very bullish with a breakout above a healthy consolidation. AUY had an impressive rally off its October low of $3.29, and was able to hold on to most of its gains as it consolidated from February through May. The breakout is occurring on an uptick in volume and a pullback to the breakout area should be met with buyers.

Seabridge Gold, Inc. (AMEX:SA) has been one of the strongest gold miners over the past few months. SA has been steadily climbing off the October lows, and has rallied almost 500% from low to high. SA has been quietly building small bases and then clearing them, only to start the process over again. It just cleared a small two-month base and is trading at 16-month highs. (For further reading, see The Midas Touch For Gold Investors.)

With the reflation theme catching on recently, gold and gold miners have been one of the strongest groups in the markets. With gold miners starting to clear important pivot highs, it is possible that they are gearing up for a trend move higher. However, almost every gold miner is overbought already, and vulnerable to a pullback. A pullback would be healthy at this point, as breakouts that occur while a stock is overbought have higher failure rates. However, these stocks have shown strength and the technical picture is much improved from even a couple of months ago. Much will depend on how gold and the dollar act over the next few weeks, but the charts are suggesting that the gold miners will find support on any weakness. Do you think these stocks are headed higher from here? Let us know by participating in the Investopedia Community.

Charts courtesy of www.stockcharts.com

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

By Joey Fundora

Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.

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