By Stockpickr Staff
Posted on March 13, 2009

Gold is starting to perk up and catch the attention of market players and serious investors on Wall Street.

The sector was on fire on Tuesday with big gains that clocked in at more than 4.5%, lagging only the consumer services sector for the top-performing industry. Some very strong action could be found in names such as Vista Gold (VGZ), NovaGold Resources (NG), Western Goldfields (WGW) and Golden Star Resources (GSS).

There could be a number of explanations for why gold is starting to show some real strength. Investors could be using it as a hedge against stock market declines, considering how much the market has run since March lows. The weak dollar is also a strong contributor, and strong demand from China and other emerging markets has helped push the yellow metal higher.

A bigger potential explanation for the strength in gold is fear of inflation. Many investors are worried that inflation is right around the corner, and the recent strength in commodities is helping to support that argument. On Tuesday, crude oil busted through $60 a barrel, marking its highest levels in six months. Prices for gasoline at the pump have also started to rise noticeably, turning up more than 20 cents on average in just the past couple of weeks.

Investors are also worried that inflation will increase due to the Federal Reserve's printing large amounts of money while the U.S. runs such a high deficit. This action by the Fed could result in the devaluing of the U.S. dollar, which would in turn cause massive inflation. When investors fear inflation they run to gold to hedge against the worst possible case scenario.

One thing is certain with gold, at least from a technical perspective: It will not be in true bullish mode until it takes out $1,000 an ounce and holds that level. Gold has twice traded up to that level and failed to break out. Could the third time be the charm? Currently, the spot price for gold is trading at around $930 an ounce. Watch for a breakout of $1,000 for real confirmation that inflation and the strength in gold is the real deal.

With this in mind, let’s take a look at a few gold stock charts that could be great plays if gold is finally ready to take out $1,000 an ounce.

1. Northgate Minerals

The first gold stock worth considering is Northgate Minerals (NXG), a Canadian-based gold and copper producer with operations, developments projects and exploration properties in Canada and Australia. The chart for Northgate Minerals is looking very bullish for a number of reasons. For one, shares have been in an amazing uptrend channel since it found a bottom in November 2008 at around 55 cents a share. That uptrend channel has consisted of the stock making higher lows and higher highs as the stock moved through both the 50-day and 200-day moving averages.

The stock has also cleared some significant overhead resistance at around $1.66 to $1.53 a share on heavy volume. On Tuesday, shares rose 7% on more than 5.1 million shares, vs. the average daily volume of 2.1 million. If the stock continues on its upward march, it could easily be heading towards $3.50 a share, or possibly even higher.



2. Yamana Gold

Next up is Yamana Gold (AUY), a Canada-based gold producer. This stock has been trading in a consolidating range of $7.30 to $9.70 a share since February.

Looking at the chart below, you can see that Yamana is starting to find some strong support right around the 50-day moving average of $8.42. If the stock can hold this key level and break out above the upper end of the channel, it could easily be heading significantly higher. In fact, if Yamana can trade through $11 a share it could be on its way back to the next area of overhead resistance at $17 a share (not seen on the chart below).

Keep an eye on the volume patterns for Yamana. If shares start to trade over 15 million shares (average daily volume) on the days it closes up, that would be a strong indication that the stock is going to break out above the upper end of the channel.



3. Lihir Gold Limited

A lesser-known gold that has an interesting chart is Lihir Gold Limited (LIHR). This company has exploration and gold development operations in Papua New Guinea, Australia and West Africa.

Looking at the chart below, you can see that Lihir Gold is setting up to potentially breakout above some previous overhead resistance around $24 to $25 a share. The volume activity on Lihir looks to be supporting the idea that a breakout is imminent. Up volume, or volume on the days the stock closed higher, has been strong through the end of April and for May vs. the down volume during the same period.

Another bullish sign for Lihir is demonstrated by the price action in the stock since it bottomed back in Dec. 2008 at around $9.84 a share. Since that bottom, the stock has been making lower highs and higher highs. This shows that investor demand is very strong for the stock every time it sells off. Look for Lihir to run up to the next level of resistance at $32.50 if the stock can blast through the near-term resistance seen on the chart.



4. Goldcorp

Our final gold stock is Goldcorp (GG). This company is engaged in the acquisition, exploration, development and operation of precious metal properties.

Looking at the chart below, you can see that things are getting very interesting for Goldcorp. The stock is approaching some overhead resistance at around $36 to $37 a share. The stock has failed twice in the recent past at these levels, so if shares can manage to burst through this area, it could be set to make a powerful move higher.

Volume is starting to pick up, and investors should look for up days that clock in at over 11.5 million shares (average daily volume). A really bullish sign for Goldcorp would be for the stock to breakout above $37 on above average daily volume. If that were to occur, Goldcorp could move significant higher and possibly back up to $52 a share.







For more ideas, visit the Charts of the Week portfolio.

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