Australian Gold Miners: Positive Signs

This story features RESOLUTE MINING LIMITED. For more info SHARE ANALYSIS: RSG

Bottom Line 29/08/23

Daily Trend: Up
Weekly Trend: Down
Monthly Trend: Up
Support levels:  5900 – 5563 / 4221 / 3345
Resistance levels: 7836/ 9125 / 9888

ASX gold sub-sector (XGD).

All prices US$/oz.

Technical Discussion

Reasons to be bullish (caution short-term):
→ More optimism regarding interest rates peaking.
→ Gold has bounced from the $1900 an ounce level.
→ One stumbling block for gold miners is the increasing shortage of technical staff.
→ Smaller Gold stocks have been struggling of late, partly due to quarterly results.
→ A reversal zone has been tagged and rejected.

It’s only around three weeks since our last look at the Gold sub sector (XGD) but it’s worth taking another look. Last time we noted a potential reversal zone had been tagged, albeit buyers were conspicuous by their absence.

The worst-case scenario was to continue down toward 6000 or even slightly beneath. Short-term weakness followed our last review, but it hasn’t been significant. Over the past week or so gold itself has rallied from the US$1900 dollars an ounce level which has been welcome.

Let’s not forget that some of the lower-cap stocks have been under the cosh recently, mostly on the back of quarterly results. It would be fair to say that many are looking oversold considering where the yellow metal is currently sitting. A bounce is underway so let’s see how far it can travel.

The weekly chart (not shown) shows some robust patterns. I’ll take a look at that timeframe during the video for clarity. Suffice to say that the larger degree wave count is bullish, with price heading higher within a larger degree wave-(3).

As a minimum, it should be similar in length to wave-(1) which itself was a multi-year trend resulting in a large percentage gain. If correct, we are only in the early stages of such a move. As long as the index can stay above 5600, the bullish larger degree patterns will remain intact.

We’ll start our wave count here from the head & shoulders pattern that started to form in September last year. It also coincided with wave-(2), providing good confluence. The rally that followed completed wave-(i), with wave-(ii) falling short of the typical retracement zone by a small margin.

This would normally be a warning sign, but in this instance, the shallow correction was due to the zone of support. Buyers stepped up at the lower boundary which again triggered a strong clean move up to wave-i.

I have pencilled in wave-ii, but it isn’t perfect. We don’t have to make any time projections to see that the retracement took substantially longer than the prior leg higher. It also headed down through the -61.8% retracement level which is also a little deep for our liking.

The current leg higher is impulsive, but it’s early days. Strength will need to continue over the next couple of weeks to get the smaller degree patterns back on track.

Trading Strategy

We recently entered a long position in Resolute Mining ((RSG)), giving us exposure to gold. However, we have several others on our watchlist and won’t hold back from putting forward more setups if the opportunities present.

As we’ve been saying over the past few months, the patterns here for the Gold sub sector (XGD) have been improving. Ideally, it’s a trait that will continue.

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