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Can Gold Stocks Follow Gold-Price Breakout?

By

Kim Ming Lam

on

May 31, 2021

Spot Gold : Channel Breakout, First Upside Target at $1,965

Source: TradingView

Spot gold rose 3.6% in April, halting a 3-month decline and up about 6.6% so far in May. Gold prices had previously been hit by a sharp rise in 10-year Treasury yields, but investors are now turning their focus to rising inflationary pressures.

U.S. Consumer Prices Growth (Year on Year)
Source: Bloomberg

Official data released in mid-May showed that U.S. core CPI, which excluded food and energy, rose 3.0% year-on-year in April, the fastest pace since 1996 and well above the Fed's 2.0% target. Core inflation remained below 2.0% for most of the time last year.

The Fed said after its FOMC meeting on April 28 that most of the rise in inflation largely reflect transitory factors and will continue to monitor the implications of incoming information for the economic outlook. Whether higher inflation is short-lived, and whether the Fed will keep tolerating high inflation, would be key drivers for gold prices. Investors should keep an eye on the release of U.S. May CPI on June 10 and the Fed's FOMC statement on June 16.

Total Known Gold-holdings of Gold-ETFs
Source: Bloomberg

On the other hand, total gold-holdings of gold-ETFs have rebounded 1.5% so far in May and is on track to end 3-month decline, according to Bloomberg data.

On the daily chart, spot gold shows early signs of an upside breakthrough. It has broken above a bearish channel drawn from August last year. The 20-day moving average has crossed above 50-day moving average. Bullish investors may consider $1,760 as the major support, with upside targets at $1,965 and $2,075.

Zijin Mining (2899.HK) : Watch Key Support at HK$10.40

Source: TradingView

Chinese mining giant Zijin Mining (2899.HK) has climbed more than 20% so far this year, boosted by strong first-quarter results and rallying metal prices.

The China Gold Association said China's gold consumption jumped 93.9% year-on-year to 288 tons in the first quarter, adding that consumption had returned to levels in the same period in 2019.

However, surging commodities prices have caught Chinese regulators’ attention. An executive meeting of the State Council of China last week again stressed the importance of price stabilization in commodities. Earlier, the three major mainland futures exchange, Zhengzhou Commodity Exchange, Shanghai Futures Exchange and Dalian Commodity Exchange all tightened risk control measures for popular futures products.

From a technical point of view, as shown in the daily chart, Zijin Mining maintains a bullish bias, even though momentum has eased. Currently, it is still trading at levels above the 50-day moving average.

Unless the key support at HK$10.40 is breached, the stock is expected to bounce to HK $13.30 and HK $14.50 on the upside.

Gold Fields (GFI) : Upside Acceleration, $14.90 Expected

Source: TradingView

Gold Fields (U.S. ADR: GFI), a leading South African gold miner, share price has jumped more than 20% since reporting first-quarter results on May 6. The company said first-quarter revenue rose 13.9% year-on-year to $1,778 an ounce of gold. Gold production grew 0.7% year-on-year to 541,000 ounces, while all-in sustaining costs (AISC) increased 10.6% to $1,078 per ounce.

Despite the fact that first-quarter production is almost flat as compared with the prior-year quarter, Gold Fields affirmed its full-year gold production guidance of 2.30 million to 2.35 million ounces, and AISC is expected to be $1,020 to $1,060 per ounce.

From a technical point of view, Gold Fields has broken above a 6-month consolidation range as shown on the daily chart. Currently, it is trading at levels well above the 20-day and 50-day moving averages, with the relative strength index surpassing 70, suggesting strong upward momentum. Bullish investors might consider $9.80 as the key support, with upside targets at $13.20 and $14.90.

The investment ideas presented here are for information only.  They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing. Learn more.

Kim Ming Lam

Head of APAC Research
Ming graduated from Hong Kong University with a Bachelor degree in mechanical engineering. He has been working in the financial services sector for over 10 years. He is currently tasked with providing clients with technical analysis views on forex and Asian stock indexes.
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