Gold hit a 7-month high this week, powered by D.C. dramatics that have plagued the Trump administration since the January inauguration. The Vaneck Vectors Gold Miners ETF (GDX) has failed to join the bullish party, but a narrow selection of junior gold stocks are attracting steady buying interest that forecasts even higher prices in coming months. These small caps could offer speculative profits for market players with well-honed risk management skills.

The majority of junior gold companies trade over the counter because they haven’t met minimum financial requirements to list on the national exchanges. However, this analysis is limited to companies that have made the jump to Nasdaq, NYSE or Amex through rapid growth, backed up by proven or well-documented resources. This approach has two advantages. First, accounting methods have been verified, lowering the risk of classic scams and second, they’re less likely to hedge revenues, levering the stock price more tightly to the underlying commodity.  

 

Almaden Minerals, Ltd. (AAU) posted an all-time high at $5.35 in April 2011, at the tail end of a multiyear uptrend, and plunged with world commodity markets into the second half of 2015 when it bottomed out at a 7-year low under 50-cents. A 2016 recovery wave stalled below $2.00 in July, generating a failed test at new resistance one month later, followed by a steep decline that posted a higher December low at 75-cents.

A January Effect bounce caught fire through the first quarter, lifting the stock within 13-cents of 2016 resistance in April, It pulled back to the 50-day EMA in May and built a rounded base, ahead of a fresh uptick that’s now testing the 2017 high at $1.88. Bullish relative strength cycles have aligned across multiple time frames, raising odds for continued upside that could yield a breakout above $2.00 and rally into the next resistance level, marked by the 2012 high at $3.33.

 

Alio Gold, Inc. (ALO) came public on the national exchanges at $11.30 in 2010 and entered an immediate uptrend that topped out at $34.40 in 2011. Two tests at that level failed to trigger a breakout, generating a triple top pattern that broke to the downside in 2013. Selling pressure escalated into the first quarter of 2016, dropping the stock to an all-time low at 70-cents.

A recovery wave into August 2016 stalled above $6.00, yielding a small scale double top ahead of a pullback that posted a higher December low at $2.70. The stock has made rapid progress since that time, grinding higher in a multi-wave uptick that’s now reached within a point of the 2016 high. Overhead supply into that level suggests the best trade entry will come on a decline that tests new support near $4.25.

 

Richmont Mines, Inc. (RIC) has traded on the national exchanges since the 1990s, finally reaching double digits for the first time in April 2011. It topped out at $13.40 a few months later, posted a small triple top and plunged into the end of 2013, testing the 2008 bear market low at 95-cents. That support level held firm, giving way to an uptrend that’s still in force as we head toward the second half of 2017.

The rally stalled less than 2-points under resistance in August 2016, with price action since that time carving a rounded basing pattern across the 200-day EMA. New support below $7.00 is now taking hold, providing a bullish platform for an uptick that could test the multi-year high. A trendline drawn across the 2016 and 2017 highs offers a useful guidepost, suggesting a breakout above $8.75 will attract broader buying interest.

The Bottom Line

A handful of small cap gold stocks are showing greater strength than the underlying commodity, suggesting improving metrics that could support much higher prices in coming months. Just keep in mind this is a highly speculative market group subject to event risk and reverse stock splits, as well as dilution through secondary offerings. 

<The author held no positions in aforementioned stocks at the time of publication.>

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