247Bull.com Editor: For those holding gold mining companies the past couple of years have been brutal. Even the high quality, low cost producers that have excellent growth forecasts have plunged in value, and there may be more pain ahead. From a technical perspective, one more push down would provide the basis for a much more convincing bottom. It’s worth noting however, that some of the analysts and money managers we follow are already beginning to add to their holdings of mining stocks, though it must be stressed that this is a time to hold quality companies with good cash flow.
While gold is still maintaining a long-term consolidation, gold mining stocks have signalled still lower prices to come.
A quick look at the weekly gold chart shows that the metal is holding above a line of support that goes back over a year.
In contrast, the XAU (gold mining stocks) has formed a bearish head and shoulders pattern, which executed when price dropped below the neckline earlier this year. We can see that the breakdown was followed by a brief snapback before the decline continued. At this point the minimum downside target would be the support line drawn from the October 2008 low.
It would be useful to note how dissimilar the two price lines are. One would think that the stocks would be closely related to the metal, but the charts will quickly clear up that misconception. (Prices are intraday.)
While for the time being gold has bounced off long-term support, the XAU has signalled that there are still lower prices ahead for gold mining stocks.
Carl Swenlin | president and founder of DecisionPoint.com
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