Tuesday, October 2, 2012

Is there a Golden Cross to be Unearthed in the Gold Miners?

From a technical perspective, one of the major buy indicators is a Golden Cross, when a short term indicator, moving up on a chart crosses a longer term indicator, specifically when the 50 day moving average crosses the 200 day moving average.

There are a lot of articles about a recent Golden Cross in the price of gold, the actual physical metal as represented by the SPDR Gold Shares, (GLD) ETF, but there is an impending golden cross in the gold miners as well. 

Two of the largest gold stocks, Barrick Gold (ABX) and Goldcorp, (GG) have been an uptrend, and barring a disastrous collapse in share price, are almost guaranteed to hit a golden cross in the next few weeks.  It’s a function of mathematics, since the 50 day will move faster than the 200 if there has been a significant recent move in the stock.

Goldcorp’s 50 day MA as of October 1 is 40.31 and the 200 is 41.50.  These numbers have been getting closer.  If I extrapolate this based on an unchanged share price for the next trading sessions, the 50 and 200 will equal in seven days.   The Golden Cross will happen on October 9.  If the price changes, it will still happen, but may vary by a day or two.  The only thing that might prevent the Cross is a catastrophic drop in the price. 

Barrick stock has been on a similar trajectory, but it had fallen further and will take longer to reach the Golden Cross.  If the stock price is unchanged, it will take 22 days for the 50 to cross the 200.  The longer it takes the more risk of a substantial price change, so investors should continue to monitor the price.

Whether you as an investor believe in this kind of technical indicator is a personal trading decision, but mathematical basis for the impending Golden Cross has already been set.  If this indicator signals a buy for you, it may be worth making that decision early rather than late. 

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