Gold: Is it too late to get in the rally?
Gold has been making quite a run
lately. In conjunction with the regain of support in the
Reuters/Jeffries CRB Index (CR/Y), gold (and gold related stocks) has performed
well since showing a little bit of weakness (in terms of price, not relative
strength) in the middle of December. I saw a cover of a Forbes magazine with
gold bars on it, and, since I am somewhat of a contrarian, that prompted me to
do a review of gold to see whether or not there was still some gains left in the
gold related stocks.
Previously, I recommended a purchase of Randgold Resources
Limited
(
GOLD |
Quote |
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PowerRating) in this column. Those who acted on that recommendation are
likely very pleased with the result. The stock still looks good and I would
recommend holding it here. However, I do not recommend adding to the position.
Are there any other gold related stocks left to buy? To help us figure this out,
let’s examine the continuous gold chart- the chart that actually tracks the
commodity’s trend.
The Point and Figure Chart above shows the run that gold has
had. Currently, the stock resides 12.43% away from its stop if you use the
support line (the best stop for longer-term investors). Personally, I only
purchase if an entity is within 12% of the stop point that I would use. Looking
at other oscillators, specifically, the relative strength index for gold
continuous, the commodity is somewhat overbought with the RSI residing at 69.02.
Looking at the history of RSI for this, that is not an extremely overbought
level.
However, a typically shorter-term measure of
overbought/oversold, stochastics, is indicating that the commodity is
overbought. There is conflicting information here, as the commodity did just
breakout when it pushed through to 536, a bullish sign. However, typically after
a breakout, there is a pullback. Plus, there is some resistance showing on this
chart from where the gold went to the 540 area at the beginning of last month.
Therefore, if I didn’t own any gold related stocks/mutual funds, I would wait
for a pullback in this chart before looking at what to purchase in the sector.
Sara Conway is a
registered representative at a well-known national firm. Her duties
involve managing money for affluent individuals on a discretionary basis.
Currently, she manages about $150 million using various tools of technical
analysis. Mrs. Conway is pursuing her Chartered Market Technician (CMT)
designation and is in the final leg of that pursuit. She uses the Point and
Figure Method as the basis for most of her investment and trading decisions, and
invests based on mostly intermediate and long-term trends. Mrs. Conway
graduated magna cum laude from East Carolina University with a BSBA in finance.