Watch for a ‘Repeat Run’ in this Gold Stock

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There was a debate that went around in 2017. It was whether bitcoin or gold is the better store of value.

Here’s what we can say right now: Both look good in a world where Donald Trump’s Twitter account can send stock markets reeling.

That’s what’s happening now.

Callum and I covered the outlook for bitcoin in our weekend video. (You can check that out here).

Today, it’s time to look at an opportunity in the Aussie gold sector….

Gold in Aussie dollars is currently a whisker under $1,900 an ounce.

That’s high. It wouldn’t surprise me to see it go higher, either.

There are two main reasons. Firstly, the market is pricing in a Reserve Bank cut in the cash rate today. That could weaken the Aussie dollar further.

Plus, we have no end in sight when it comes to Trump’s chaotic ‘policies’. That means we can expect stocks to gyrate with uncertainty.

Currently, I have my eye on gold producer Gold Road Resources Limited [ASX:GOR].

It ended yesterday just shy of 10% higher.

There was no direct catalyst, like a company announcement, to explain this.

It’s not unreasonable to suggest that investors are simply seeking shelter from market turmoil in gold stocks.

But GOR has some nice tailwinds specific to it, too.

I’ll examine GOR from a technical perspective below.

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But let me tell you some of the fundamentals first.

Who is Gold Road Resources?

GOR is a mineral exploration and development company located in Western Australia.

The company holds a land interest that covers approximately 5,000 square kilometers. 

This area is known as the Yamarna Greenstone Belt, and, according to some estimates, there could be around 6.6 million ounces of gold around here. The company has a market cap of $940 million and holds around $49 million in cash.

I point out this cash in the bank because it puts GOR in a strong position. It means the company is not dependent on raising money from the market to keep funding operations.

Gold Road’s main asset is its Gruyere gold mine. This is only on the cusp of production.

But it means Gold Road can cash in on these high gold prices if they continue.

Gruyere’s annual production should be 300,000 ounces.

Already, 110,000 of these are ‘hedged’ at $1,808 an ounce. That gives Gold Road some downside protection should the Aussie gold price tumble below $1,808 for some reason.

But the remaining ounces can currently be sold at the higher market price…

What’s next for GOR?

Gold is up around 6%, or AU$121 per ounce for the year.

Gold is the clear beneficiary of the current rising tension.

That means Aussie gold producers can sell their gold for more money than they could at the start of the year.

I’m not sure if a gold miner is a great long-term investment. But you can get some great short-term moves.

Let me show you one way to think about something like this.

With this chart, I want to you focus on the two lines I’ve called the ‘prior resistance level’ and the ‘potential resistance level’.

A screenshot of a map  Description automatically generated

Source: Optuma

Let me explain…

As you can see, GOR took several years to cross above the prior resistance level.

From a technical perspective, this usually signals the market pricing in future growth for the company. That’s a good sign.

Where could Gold Road rise to in the short term?

Look at the second line on the chart. This is important; it’s what I judge to be a potential future resistance level.

A screenshot of a map  Description automatically generated

Source: Optuma

It is simply a forecast based off the previous run higher.  If the share rose $0.44 in the past, and continues to show strength, then it’s not off to assume that GOR could rise another $0.44.

This is known as a repeat range and is something to watch for in the market.

Of course, nothing is certain. It’s a potential scenario, not a guarantee.  

But keep an eye on Gold Road over the next month and see if it plays out.

It’s an example of how to use ‘charting’ to help your fundamental analysis.

Please note this isn’t a recommendation to buy GOR. It’s an illustrative update only. I hope you found it helpful.

Until next time,

Jim Rickards Signature

Jonathan Evans,
Analyst, Profit Watch

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