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Topside Break Might Be In Store for Royal Gold

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Consider staking out a position in a strong gold stock before the crowd.

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MINYANVILLE ORIGINAL I coined a term some time back where I spoke of stocks experiencing "momentary weakness." It refers to the situation where the general market and the stock you are interested in are bullish on the long and intermediate term but not the short term. Here's the Trading Cube for Royal Gold (RGLD) which visually demonstrates the setup.

royal-gold-chart
Source: www.tatoday.com

As seen in the snapshot qualified-trend view the Trading Cube provides, Royal Gold remains stuck in a short term confirmed bearish trend. It reported earnings yesterday and the headlines came across as a miss, but the market didn't take Royal Gold to task like it has most stocks that "miss." Down 2.5% isn't that much when a stock is sitting within spitting distance of its all-time highs and is stuck in a sector that continues to offer little support. With the league of extraordinary bankers sharpening their pencils though, that may be about to change, and right now the gold stocks look to be the undervalued group – not the bullion itself.

Here's the short term chart of Royal Gold. It moved from the 50s to 80s in a non-stop fashion so consolidation at these levels is what was needed.

royal-gold-short-term-chart
Source : www.investools.com

If you pull the chart back a bit to look at the intermediate term you can see how the stock has attacked the highs with volume expansion – not contraction. That's what you want to see.

royal-gold-chart
Source: www.investools.com

Now, for the kicker, pull the chart back to the long term time frame (five years of monthly bars) and you will find that they are actually consolidating over the past 16 months at the highs. Here is where you get a good whiff of what is going on. Royal Gold isn't like any other gold miner; in fact it isn't a miner at all. It is more like a high-priced financier to the mining industry and it gets paid in gold!


Source: www.investools.com

With a staff of 21 employees pulling in some $250 million in revenue over the past year, this is not your average gold mining company. It is a pure profit machine which is why the stock price has hovered at all-time highs while the rest of the sector has consolidated at lows.


Source: www.investools.com

So I ask you, what do you think will happen if the sector starts to push higher? It seems to me that topside break might be in store for Royal Gold. Now I grant you that those stocks in the sector that have more ground to make up will likely run faster, but with there still being uncertainty surrounding these other stocks for now, wouldn't you rather stake out a position in a strong gold stock before the crowd gets involved in the sector? I would.


Twitter: @tatoday
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No positions in stocks mentioned.
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