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5 Gold Miners to Benefit From QE3 - 12516 views
WINDERMERE, Fla. (Stockpickr) -- Gold is hitting a record high above $1,580 an ounce in early trading Wednesday, with market players fearing that the worst could still be in store for the eurozone debt crisis.
Traders are concerned that a major debt default could occur at any time out of Greece, Spain, Italy, Portugal or Ireland. The big fear is that Italy could be in serious trouble, and a default there would be catastrophic because many analysts believe that Italy is too big to fail or that there just isn’t enough money to in Europe to bail the country out. Remember, Italy doesn’t have a printing press like the U.S. does through our Federal Reserve.
The problems in the eurozone aren’t the only catalyst that’s helping gold continue to catch a bid from bullish traders. The ongoing saga in Congress over the debt ceiling is another major political event that’s keeping buyers swarming back to the yellow metal. The longer that the Democrats and Republicans fight in Congress over of the debt ceiling, then the longer that gold is going to look like an attractive hedge to traders.
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And if all of that wasn’t enough to make gold bulls happy, we now have hints from the Federal Reserve that the possibility of a third round of quantitative easing is back on the table. During the latest FOMC minutes released on Tuesday, a number of Fed policymakers hinted that they’d be willing to consider QE3 if inflation dropped and unemployment stayed high.
Nothing will be more bullish for gold than QE3, simply because the Fed will have no choice but to debase the dollar and print huge amounts of greenbacks. By flooding the markets with more dollars, the Fed will increase the risk of a dollar crisis at some point in the future. All that would have to happen to spark a dollar crisis is for foreign investors to dump large amounts of our debt, which is dollar-denominated.
With all of this in mind, it’s time to look at some gold miner stocks that could benefit from another round of quantitative easing from the Fed.
One gold miner stock that looks poised to trend higher is New Gold (NGD). This is an intermediate gold producer with a portfolio of global assets in the United States, Mexico, Australia, Canada and Chile. This stock is off to a decent start in 2011 with shares up over 13%.
If you take a look at the chart for New Gold, you’ll see that this stock has started to break out above a key descending trend line that started back in April. Whenever I see a stock move above a key descending trend line, I start to consider the possibility at the trend on the stock is about to change. This often is a technical signal that it’s time to buy the stock. Now NGD is starting to move above some past overhead resistance at around $11 a share.
Another thing I like about NGD here is that the upside volume during the past 30 days is much stronger than the downside volume. This is a very bullish volume pattern because it shows that the buying interest among large traders is much stronger than the selling interest.
One could be buyer of this stock once it breaks out above $11.47 a share on strong volume. Look for volume that’s tracking close to or above its three-month average volume of 3.5 million shares. One could also wait for the stock to trigger a major breakout if it manages to move above $11.95 a share on strong volume. A move above that level that isn’t a false breakout, will give this stock a great chance to trend significantly higher.
Remember to have a level where you feel comfortable placing a mental stop on NGD in case the bullish case I am laying out doesn’t materialize.
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Great Basin Gold
Another gold miner that looks ripe for higher prices is Great Basin Gold (GBG). This company, through its subsidiaries, engages in the acquisition, exploration, and development of gold properties. This stock has struggled big so far in 2011 with shares off by over 25%.
If you take a look at the chart for Great Basin Gold, you’ll see that this stock has just started to break out above some major past overhead resistance at around $2.10 to $2.11 a share. Upside volume yesterday leading up to this breakout was extremely strong at 2.7 million shares traded, which is well above the three-month average of around 2 million shares. Volume today has already clocked in at 1.4 million shares with the stock up over 4%. That trend should easily see the volume for GBG exceed its three-month average by the time the market closes today.
This stock looks like its setting up to test its 200-day moving average of $2.53 a share. If the stock gets above that level on strong volume, then I would fully expect GBG to challenge $3 a share.
One could be a buyer of this stock on any weakness and add aggressively to the trade above the 200-day moving average at $2.53. I would add to any long position again if you see the stock take out more overhead resistance at $2.83 to $2.85 a share. Keep in mind that the 52-week high on GBG is $3.32 a share, so a run even to that level could easily be in the cards. I would stop out of any long trades in GBG if you see the stock trend back below its 50-day moving average of $2.03.
Harmony Gold Mining
One gold miner that’s acting very strong in this market is Harmony Gold Mining (HMY). This company is engaged in underground and surface gold mining and related activities, including exploration, processing and smelting. This stock is off to a solid start in 2011 with shares up over 12%.
If you take a look at the chart for Harmony Gold Mining, you’ll see that this is another gold miner where the stock is breaking out above a key descending trend line. Shares of HMY recently started to move above a descending trend line that started back in May. This could be a signaling that the bulls are back in control of this stock and its setting up to trend significantly higher.
The next bullish signal for HMY will be hit once the stock moves above some big overhead resistance at around $14.29 a share. Look for a move through $14.29 on strong volume that’s either close to or above the three-month average action of 3.3 million shares. If we get that move, then this stock should have no problem testing its 52-week high of $15.73.
One could be a buyer of this name above $14.29 and simply stop out of the trade if it moves back below that level on big downside volume. I would add aggressively to any long position above $15.73 since that would trigger a big breakout for the stock.
Another hot gold miner that you shouldn’t ignore is Seabridge (SA). This company is engaged in acquiring, exploring and developing gold deposits. The Company’s principal projects are located in Canada. This stock is off to a very flat start in 2011 with shares off by around 1.2%.
If you take a look at the chart for Seabridge, you’ll see that this gold miner is quickly approaching a big breakout above a key descending trend line that started back in late April. This trend line break will trigger if the stock moves above $31 a share, so traders need to keep that price point on their radar, since it could signal that this gold play wants to trend much higher.
If the stock gets over $31, then watch for a move above the next major overhead resistance level at $31.38 would be trigger another buy signal. Once SA clears those two levels, then it’s possible that the stock is setting up to trade back towards $35 to $36.22 a share. Another bullish chart pattern on SA that makes this trade look appealing from the long side is how the stock has been making higher lows and higher highs for the post month. This shows that traders are paying up to buy the stock on any dip.
One could simply be a buyer of this stock once you see it move above that descending trend line at around $31 a share. I would add aggressively to any long position above $31.38 and I would add again if it breaks out above $36.22 on strong volume. Look for volume that’s clocking in near or above the three-month average volume of 309,400 shares. One could simply stop out of this trade if you see a big volume move below the 200-day moving average at $29.81 a share.
Keep in mind that over 10.6% of the float for SA is currently sold short by the bears. This is a high enough short interest that the stock could see a big short squeeze if it starts to trade above its 52-week high of $36.22.
One more gold miner that market players should keep on their watchlist is Richmont Mines (RIC). This company engages in the acquisition, exploration, development, and operation of mining properties, principally gold in northeast Canada. This is one of the strongest acting gold miners in the market with shares up over 59% so far in 2011.
If you take a look at the chart for Richmont Mines, you’ll see that this red-hot gold mining player has also started to break out above a key descending trend line that started back in early May. The stock has also started to trade above another key technical level, the 50-day moving average at $7.47 a share. The move for RIC through the 50-day triggered yesterday and it came on huge volume of 522,500 shares, which is well above the three-month average volume of 456,600 shares.
The stock has just hit another key bullish technical signal with shares moving above some past overhead resistance at $8 a share. This move above $8 could be signaling that RIC wants to trend sign faintly higher from current levels.
One could be a buyer of this stock on any weakness now that it has moved above $8 a share. I would add aggressively to RIC if you see it trade above the next major overhead resistance level at $8.81 a share, and then I would add again on a breakout above the 52-week high of $10.16 a share. I would simply stop out of this trade if you see RIC trade below its 50-day moving average of $7.47 on heavy volume.
Richmont shows up on a recent list of 8 Mining Stocks to Watch.
To see more gold miners worth watching, check out the Gold Miner Stock Plays For QE3 portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Windermere, Fla., is an independent trader who focuses on stocks, options, futures, commodities and currencies. He is also an outside contributor to Beconequity.com and maintains the website Maddmoney.net, which he sold to Blue Wave Advisors in 2008. Roberto studied International Business at The Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany.