Gold prices are flirting with six-year highs after surging by more than 10% from this year lows. As the price continues to test resistance levels last registered in 2013, daily momentum appears to be deep in overbought territories. A pullback could thus be in the offing pending further upside action. A spike in gold prices has once again triggered renewed investor interest on gold stocks with the likes of Vanstar Mining Resources Inc. (CVE: VSR) and Crystal Lake Mining Corp (CVE: CLM) seeing increased market activity.
Gold Price Analysis
After a long period of consolidation, Gold did take out the $1350 resistance level on its way to the $1400 level. A spike to the $1437 level appears to have elicited some selling pressure as the yellow metal has since pulled lower. The $1400 level has since emerged as the immediate support level supporting further upside action in continuation of the bullish momentum.
A spike to six years high was not expected this fast. This explains the recent pullback. However, Gold remains bullish, given the underlying developments that continue to support price action.
Gold Price Catalyst
In recent months, Gold has assumed its haven status amidst growing concerns about the health of the global economy compounded by trade tensions between economic powerhouses. Geopolitical tension pitying the U.S and Iran has also forced many investors to shift their investments into safe-haven assets such as Gold as the threat of a full-blown war becomes real by the day.
The Federal Open Market Committee retaining interest rates but leaning more dovish has also triggered weakness in the U.S dollar consequently fuelling a spike in the precious metal price. The committee warned that it would cut interest rates should the U.S economy begin to show signs of a slowdown has also worked in favour of gold prices given the weakness it has triggered on the U.S dollar.
Dovish monetary statements by the U.S central bank as well as the European Central bank raises serious concerns about the health of the global economy. Gold tends to outperform the overall market in times of uncertainties, given its haven status.
Gold safe-haven demand should continue to rise should the U.S and Iran fail to reach an agreement that would bring to end tension in the gulf. Should the U.S unleash military power against Tehran following the shooting of its military surveillance drone, then it is likely that Gold will spike even higher as investors rush towards safe havens.
Gold Stocks Performance
Higher gold prices work in favour of companies engaged in the exploration and mining of the precious metal given the higher returns expected as prices surge. Vanstar mining resources is one such company that has started seeing renewed investor interest if recent market activity is anything to go by. In partnership with IAMGOLD, the company is currently working on the development of Nelligan Project believed to play host to huge gold prospects.
Crystal Lake Mining is another company engaged in the exploration of metal resources in Canada. The company is currently exploring for Gold, nickel, cobalt, and copper at its flagship properties in Emo Ontario. The company has also expanded the size of its Newmont Lake Project, thereby becoming the largest landholder in broader Eskay camp.
The fact that Gold remains bullish given the uncertainties on global economic growth, as well as geopolitical tensions, should continue to support a spike in gold-focused stocks with solid fundamentals. Above the $1400 level, gold prices should continue to rise. A breach of the support level could result in Gold dropping back to the $1361 support level.