Commodity Stocks: A Bullish Technical Setup In Barrick Gold (ABX)…
No doubt about it, the last six months have been a slow motion train wreck for gold miners.
Take Barrick Gold (ABX) for example. As you may know, Barrick is a goliath of the gold mining industry with a market cap of $15.7 billion.
It wasn’t long ago that Barrick was basking in the glory of a seemingly unending rise in the price of gold.
But now that the gold market has essentially crashed, it doesn’t take a rocket scientist to figure out why Barrick’s share price is following in the yellow metal’s footsteps.
Take a look at this chart…
As you can see, it’s been nothing but pain for Barrick investors over the past year. As of last Friday’s close, shares of the mining giant were down 60%.
Of course, Barrick isn’t the only gold miner that’s suffering. The entire industry has been demolished as operating costs have soared while the price of gold plunged. Needless to say, if there was one industry to avoid investing in over the past year, gold mining is it.
Things are so bad at Barrick that the company recently announced they’re cutting 30% of their Canadian corporate workforce. And apparently workers in the field aren’t safe either. According to a Reuters article, the company is cutting jobs at mine sites in the US and Australia.
And that’s not all…
Due to this year’s collapse in gold prices, newly hired Barrick CEO Jamie Sokalsky is considering a shift in the company’s operational strategy.
According to his presentation at the Bloomberg Canada Economic Summit, regaining profitability is the company’s sole focus going forward. As a result, many of the company’s higher-cost mines will be sold off or shuttered.
Previous Barrick CEO, Aaron Regent, obviously thought the price of gold would continue rising as he focused on ever-increasing production in spite of the costs. Not surprisingly, the company’s board of directors ousted him in June 2012.
Given this shift in strategy, is it time to buy Barrick Gold?
Clearly, the market has done a great job of pricing in Barrick’s troubles this year. But with the stock currently trading 30% below book value, shares are getting undeniably cheap.
But what’s even more interesting is the fact that a very bullish technical setup has developed over the past few months.
Take a look…
As you can see, ABX made a new low in recent trading. But notice the Relative Strength Indicator (RSI) at the bottom of the chart. This momentum indicator failed to make a new low along with the stock.
This is a rare example of a divergence between the stock price and momentum.
In a nutshell, it means selling pressure is waning and the stock could be starting a long-term bottoming process. In fact, the last time ABX formed this pattern in mid-2008, shares soared from $18 to $36 within a matter of months!
Bottom line…
Times are tough in the gold mining industry right now. But given the extreme selloff in 2013, miners are currently showing extreme value. Throw in the bullish technical pattern you see above and Barrick Gold is worth a strong look from value investors!
Until Next Time,
Justin Bennett
Category: Commodities
