Gold Stocks: Trend Up But Share Prices Rich

This story features ST. BARBARA LIMITED. For more info SHARE ANALYSIS: SBM

[Note: The above charts the ASX gold mining sub-sector (XGD) within the larger mining (materials) sector.]

Bottom Line 28/07/20

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support levels: 8730 –  8613 / 7389 / 5105 / 4280
Resistance levels: N/A

Technical Discussion

Reasons to remain bullish longer term:
→ Gold benefiting from increased coronavirus cases.
→ Recent geopolitical issues have provided a tailwind.
→ Broken through resistance which should now be acting as support.
→ The XGD has penetrated all-time highs.

A well-earned breather was being taken during our last review of the gold sector. However, price action was strong keeping the bullish case alive and well. Buyers reappeared quickly from where price has driven up through all-time highs. The Gold sub sector is now in blue sky territory. A strong position to be in. The yellow metal is being well supported with buyers waiting in the wings to jump onto any slight weakness. A trait that looks likely to continue for the foreseeable future.

Tonight we are going to look at the larger degree patterns via the monthly chart. We’ll take the wave count from the significant lows made in late 2014. It completed a larger degree wave-[2] which triggered a phenomenal leg higher. All impulsive legs should subdivide into 5-waves. There is a good example here up to wave-(1).

The only small concern is the length of time taken by wave-(2). A retracement will usually take at least 38.2% of the prior leg. It hasn’t come anywhere near to being achieved here. It’s not to say the wave count is incorrect as retracements are often short in exceptionally strong trends. Either way, we have a line in the sand to concentrate on. If recent strength is within a larger corrective pattern the line in the sand shown at 10114 should not be overcome. I’ll explain further during the video. Suffice to say, the further price gets up through that level the more confident we become regarding wave-(2) being locked in. We are as confident as we can be at this stage that price is heading higher within wave-(3). Confirmation is always welcome though.

Third legs are usually the strongest of all the impulsive waves. The big positive here is that the XGD should be heading higher within wave-(3) of a larger degree wave-[3]. It doesn’t get much more bullish. With it being the monthly chart I’m not going to make long-term projections. That said, if the patterns continue to prove themselves a multi-year trend higher is in its early stages.

Trading Strategy

We currently have exposure to the sector via St Barbara ((SBM)) & Evolution Mining (EVN). We have several others on the watchlist, but low risk entries are difficult to find. The reason being gold stocks have shot higher in straight-line moves. Some consolidation would be ideal, especially as many are looking overbought over the short-term. Bigger picture though, gold continues to look bullish.

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