Gold mining stocks are soaring! Time to buy?

While gold has been breaking to new 2019 highs, institutional investors and hedge funds have secretly been snapping up gold mining stocks. And, according to the manager of Invesco's Global Gold Fund "economic factors underpin a rising price for gold, while mining companies are focused on improving returns" - creating a possible explosive combination for investors.

In this article, we explore a selection of gold mining stocks that are piquing investors interest and what could be next for gold and gold mining stocks. Let's get started!

Why Are Gold Mining Stocks Rising?

The price of gold can often correlate with the price of certain gold miners. However, the correlation has historically been tricky as there are many influences on the price of gold such as demand for jewellery, central bank purchases and demand from the technology sector for mobile phone chips.

Recently, gold demand has been driven by its use as a safe haven asset - as it can be melted down to create a form of money, among other reasons. The ongoing U.S-China trade tensions, the increasing war of words between the U.S and Iran, Brexit woes and a struggling U.S dollar have helped investors flock to the traditional safe haven of the gold market.

Historically, the return from the mining sector was three times that of the gold price. But, with rising costs of exploration and cost pressures from labour and fuel gold mining stocks have struggled in the past. However, with a turn in gold prices and the gold mining sector learning from their mistakes and cost-cutting their mining processes, the combination could bode well for gold mining stocks.

Let's take a look at the technical picture to identify the current trend of buyers and sellers active in the market.

How to Trade Gold Mining Stocks

With Admiral Markets there are a variety of gold mining stocks and ETFs (Exchange Traded Funds) that are available to speculate on via CFDs (Contract for Differences), enabling the trader to go long and short. Longer-term investors can also invest in shares of companies or ETFs through Invest.MT5, with investing fees starting at just $0.01 per share.

To gain exposure to the overall gold mining sector, without searching through individual stocks, traders or investors can focus on ETFs such as the VanEck Vectors Gold Miners ETF. This particular ETF currently comprises of 46 gold mining companies such as Barrick Gold Corp, Newmont Goldcorp and so on.

Below is the long term price chart of the VanEck Vectors Gold Miners ETF (GDX):

Source: Admiral Markets MT5 Supreme Edition, GDX, Monthly - Data range: from May 1, 2006, to June 17, 2019, accessed on June 17, 2019, at 11:18 am BST. - Please note: Past performance is not a reliable indicator of future results.

In the above chart, it is clear to see the struggles that have plagued gold mining companies in the past. The rising cost of exploration and financial leverage restrictions have taken their toll on the sector. However, with the management team of companies finding new and better ways to mine gold, it may just be a matter of time before a turnaround starts.

In fact, in the above chart, the black horizontal line at $17.16 has acted a support level where some short-sellers may have exited their positions and value-driven investors may have entered long positions. Either way, if price can stay above this level then buyers will be eyeing the next major horizontal resistance line at $32.

How to Trade Gold Mining Stocks

While ETFs can help traders or investors gather general exposure to a sector, some may prefer to focus on individual companies such as the world's largest gold mining company Barrick Gold Corp (ABX).

Source: Admiral Markets MT5 Supreme Edition, ABX, Monthly - Data range: from Feb 1, 1990, to June 17, 2019, accessed on June 17, 2019, at 11:28 am BST. - Please note: Past performance is not a reliable indicator of future results.

In the above long-term price chart of Barrick Gold, it seems as though the stock price is at an interesting area of support created by the black horizontal line at $13.09. Zooming into the chart to look at more recent price action also paints an interesting picture:

Source: Admiral Markets MT5 Supreme Edition, ABX, Weekly - Data range: from Feb 24, 2013, to June 17, 2019, accessed on June 17, 2019, at 11:30 am BST. - Please note: Past performance is not a reliable indicator of future results.

In the above weekly chart of Barrick Gold Corp, buyers have been struggling to break through the $14 price level, as shown by the smaller black horizontal line. However, sellers have not managed to take control just yet as the stock is still making higher low price cycles.

Many traders will be waiting for the stock to break through the $14 price level before adding to or initiating new long positions, targeting the next level of major resistance at $22. Fundamentally, it seems as though investors have liked Barrick Gold's merger with South African mining company Randgold Resources in late 2018 and will be looking for the trend to continue.

Conclusion

The gold mining sector is currently undergoing a huge shift that is also being supported by higher gold prices. If these trends can continue, it could be the beginning of a remarkable turnaround. As with any form of investing there are risks involved.

Having the ability to test your trading strategies and theories can be highly beneficial in developing long-term skills for trading and investing. However, the first step is to use the right platform which offers access to the right trading products.

With MetaTrader 5 you can trade on multiple asset classes, as well as access superior charting capabilities, free real-time market data & analysis, the best trading widgets available, and much more! To download MetaTrader 5 now, click the banner below and receive it for FREE!

INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

1.This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.

2.Any investment decision is made by each client alone whereas Admiral Markets AS (Admiral Markets) shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.

3.With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.

4.The Analysis is prepared by an independent analyst Jitan Solanki, Freelance Contributor (hereinafter "Author") based on personal estimations.

5.Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis.

6.Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.

7.Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand therisks involved.