Commodity Trades: Gold’s Sell-Off Continues

Well, it finally happened: Gold fell below its 200-day moving average for the first since January 2009, dealing a heavy blow to gold rally enthusiasts. Is this the end of the gold rush?

A drop below the 200-day moving average is “usually a bad sign for an asset, as these moving averages are used to even out daily blips and signal a shift in a long-term trend,” reports Ritholtz.com.

Indeed, gold is a long way from its 52-week high of $1,916.20/oz. It currently trades at $1594.24, although this is a slight improvement over $1,575 per ounce on Thursday.

Panic Selling

As The Financial Times describes it, gold does well in times of mild panic, but given the current state of the global economy “mild” fails to cover the sentiment.

“But just as in 2008, when times get really tough, investors prefer cash to gold; and dollar cash at that. Goldbugs like to treat gold as a currency, and its price as an exchange rate. On that basis, gold fell against the dollar, as investors decided the greenback is safer in times of crisis.”

Questioning the 200-Day MA

“After rallying nearly 125% since the start of the current streak to its highs earlier in the year, gold has now declined by 16% and is up 88% since the current streak began,” says Market Watch.

As a point of fact, gold is still on an upward sloping trend overall. Given that gold has been on the rise since 1999, some analysts are questioning the implications gleaned by a 200-day indicator – a comparatively small time frame in gold’s rise.

Investing Ideas

Not convinced of gold’s troubles? To illustrate the idea, we looked at the performance of gold stocks over the last month, and found those with the lowest ratios of winning streaks (in days) to losing streaks, indicating a persistence of negative alpha over the last month.

These gold stocks have been on long losing streaks over the last month–do you think they’re going to rebound, or is there more downside ahead?

Use this list as a starting point for your own analysis.

1. Allied Nevada Gold Corp. (ANV, Earnings, Analysts, Financials): Engages in the evaluation, acquisition, exploration, and advancement of gold exploration and development projects in the state of Nevada. The stock’s average daily alpha vs. the S&P500 index stands at -0.91% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock’s daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.33).

2. AuRico Gold Inc. (AUQ, Earnings, Analysts, Financials): Engages in the exploration, development, and production of gold and silver mines and projects in Mexico. The stock’s average daily alpha vs. the S&P500 index stands at -1.18% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock’s daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.5).

3. Claude Resources, Inc. (CGR, Earnings, Analysts, Financials): Engages in the acquisition, exploration, and development of precious metal properties, as well as production and marketing of minerals in Canada. The stock’s average daily alpha vs. the S&P500 index stands at -0.97% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock’s daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.33).

4. Eldorado Gold Corp. (EGO, Earnings, Analysts, Financials): Engages in the discovery, exploration, development, production, and reclamation of gold properties in Brazil, the People’s Republic of China, Greece, and Turkey. The stock’s average daily alpha vs. the S&P500 index stands at -1.07% (measured close to close, over the last month). During this period, the longest losing streak lasted 9 days (i.e. the stock’s daily returns underperformed the S&P 500 for 9 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.22).

5. Keegan Resources Inc. (KGN, Earnings, Analysts, Financials): Engages in the acquisition and exploration of gold deposits in West Africa. The stock’s average daily alpha vs. the S&P500 index stands at -1.52% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock’s daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.29).

6. International Tower Hill Mines Ltd. (THM, Earnings, Analysts, Financials): Engages in the acquisition, exploration, and development of mineral properties in Alaska and Nevada. The stock’s average daily alpha vs. the S&P500 index stands at -1.52% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock’s daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.29).

7. US Gold Corporation (UXG, Earnings, Analysts, Financials): Engages in the exploration for, development of, production, and sale of gold, silver, and other precious metals. The stock’s average daily alpha vs. the S&P500 index stands at -2.06% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock’s daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.5).

8. Exeter Resource Corporation (XRA, Earnings, Analysts, Financials): Engages in the acquisition, exploration, and development of gold deposits in the Maricunga district in Chile. The stock’s average daily alpha vs. the S&P500 index stands at -1.75% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock’s daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.5).

(Written by Rebecca Lipman. List compiled by Eben Esterhuizen, CFA)

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