Gold surged higher yesterday and could be headed to new all-time highs. We recently took a look at gold and gold miners as the commodity traded near an important inflection point; at that time, we speculated that its consolidation was nearing an end. Following up a few leeks later, there have been some positive developments in gold, and it looks like it is indeed ready to continue higher.
In looking at gold, as represented by the SPDR Gold Trust (ETF) (NYSE:GLD), you can see that it surged from April through the early part of May, and settled into a volatile consolidation. While the moves were sharp, GLD managed to hold well above the breakout area and held near its prior highs set in December. GLD has also been able to maintain a pattern of higher highs and higher lows for the past several weeks. The May high near $122 is the key level to watch as a reversal near this level may be a signal that more consolidation is needed before a successful breakout can occur. (For more, see The Anatomy Of Trading Breakouts.)
When gold rallies, it is usually a good idea to pay attention to the miners. Allied Nevada Gold Corp. (AMEX:ANV) was one of the best performers a few weeks ago when gold rallied. After a sharp correction, it could be ready to turn the corner higher again. ANV had cleared an important level in late April and rallied to all-time highs. The recent correction occurred on large volume and ANV still has an unresolved gap near $21-$22 that could cause some problems. However, the recent price action near $19 has been positive and ANV did manage to hold near key support at $17 per share.
Goldcorp Inc. (NYSE:GG) is another gold miner that rallied along with gold in April through early May. It has been following a clearly defined channel as it trades higher, and recently found support near $40-$42. This will be a solid support level to watch moving forward in case GG doesn't follow through higher. The $44 level is the next level to watch on the upside as a move above this level would likely mean an upcoming test of the May high near $47.
Eldorado Gold Corp. (NYSE:EGO) is one of the better looking gold miners out there, although it has also been quite volatile. EGO cleared its base in May and surged higher, tacking on gains of more than 20% in just a few sessions. However, it gave back the entire rally just a few days later. Continuing the roller coaster ride, EGO bounced back near $17 almost immediately and, more importantly, respected the breakout level as support. While EGO may need more time to consolidate the recent volatility, it could be a primary benefactor from a surge in gold. (For more, see The Midas Touch For Gold Investors.)
Trading miners can be tricky, because gold tends to rally during times of uncertainty in the markets. Then, gold miners often suffer during corrections despite rising prices in the precious metal. However, if the markets can find some footing, or if the yellow metal catches fire, then these stocks could certainly benefit and transcend the markets for a while. All of these stocks respected support on their most recent pullbacks, and appear to have settled into a pattern of higher highs and higher lows. Gold appears to be headed higher, so it's possible that these stocks will have a catalyst for strength.
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.