Alamos Gold drops takeover bid for AurizonGetty Images/iStockphoto
Investors eager for a broad gold sector recovery will have to wait until the tail end of the current bull market for equities, according to the technical analysts at Phases & Cycles.
The sector started 2014 on a bullish note, with the spot price climbing from the $1,200 range all the way up to $1,380 by mid-March. However, the wheels have since come off the rally and denied the gold sector what it needs most: a solid basing period.
"Basing" is a technical term that describes the period in which a stock more or less moves sideways, often after a large decline. Longer bases often result in higher upward price movements than shorter ones.
However, the analysts identify a few mining stocks with early upside potential. Aurico Gold, Capstone Mining, Nevsun Resources and Freeport McMoran C&G all have bases that could result in decent rallies. Bigger names, such as Barrick Gold or Goldcorp have much smaller bases, which could support only brief rallies.
The rest of the sector consists mainly of stocks that are trading below their declining 50- and 200-day moving averages. These stocks should be avoided "at all costs," say the analysts.
"Past precedents show that gold stocks usually come to the fore toward the tail end of bull markets. We are not there now. Therefore, investors who wish to participate in the sector should focus only on the strongest names."
Inside the Market readers can click here to view the full report from Phases & Cycles.