After a stock market crash in March, the investors are now afraid of everything. While bulls are hoping for V-type of recovery rationalizing the power of quantitative easing, the bears are explaining the future price curve with disappointing upcoming statistics. I am going to focus on what is certain and what is doing better than the other.
The last time I wrote about gold was in August 2018, when the commodity price was positioning itself for a surge, which played out quite well. Today, I have recognized another important movement in the price of gold – it has pierced through a resistance level of 1700.
Not only it broke the resistance, but it also seems like it wants to stay above and claim it as a new support level. From a technical perspective, I still see doubts that need to be cleared: The volume is not significant (see the red circle), I want to see an increasing volume. Second, there is a little bearish divergence in the RSI indicator. Thus, in the short-term, I would expect the price to correct and test the new support level of approx. 1700.
On the other hand, in the long-term, the gold vs S&P ratio has increased substantially. In other words, gold is doing much better than the market. The trend in GOLD is still a rising line. MACD and stochastics are supporting the rising price.
Because of a favorable price rise of the commodity, the commodity producers’ value can grow exponentially. Thus, owning Barrick Gold or Newmont Corp. is a must, just look at their share prices.
However, there are also smaller miners, which come with a risk, although if chosen wisely, the returns may be exponential. One of the stocks I have been following for quite some time is Gold Resource Corp. In August 2019, when gold price started its bull run, GORO also changed its trend after winning the fight with 200 SMA, the companies value increased by 80%.
Recently, corona virus smashed its price as everything and thus, provides a suitable entry point again. As gold price is soaring, the golds stocks follow. GORO is approaching the 200 SMA again. Once this resistance level is beaten, the upside potential represents again at least 80% increase. Given the expected global economic crises, even more.
The things are very uncertain now and therefore, the stock selection is tougher than anytime before. Stay focused on big picture.
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