A couple of days ago when gold and the SPDR Gold Trust ETF (NYSEARCA:GLD) were getting back into a bullish groove, I advocated Randgold Resources Ltd. ADR (NASDAQ:GOLD) as the better way to play gold’s rebound. GOLD had fought its way back above a key ceiling, and was poised to take off… much more so than GLD was. To tell you the truth though, Randgold Resources Ltd. wasn’t actually my first choice. The gold mining name I wanted to suggest was a little smaller – Vista Gold Corp. (NYSEMKT:VGZ). In the meantime, VGZ has forged out enough of the bullish progress I saw brewing then to merit a mention now.
With a market cap of only $88 million, VGZ isn’t exactly capable of commanding the same kind of attention that $7.5 billion GOLD can. The fact that Vista Gold isn’t actually producing gold isn’t helping either. But, for those who know the difference between a ‘trade’ and an ‘investment’ (Randgold Resources Ltd. is an investment, while Vista Gold Corp. is a trade), there’s some serious opportunity with Vista as of today.
It’s all in the chart. Last week, VGZ broke above a key falling resistance line (red); what you can’t see is how that line tagged the peak from September of last year. This week, Vista Gold Corp. shares broke above their 50-day moving average line (purple). Both are multi-month firsts, which in itself is an indication of a paradigm shift. But, to see them at the same time signals a major turning of the tide. After nearly eleven months of bearish pressure though, this small bullish nudge could simply be the first step in a much bigger rally.
There’s more to the budding rally than just a technical catalyst though. Gold prices themselves are on the rise, and that – philosophically anyway – makes gold mining names like Randgold Resources and Vista Gold more profitable. The costs to mine the stuff are fixed, but the price at which it’s sold is variable. Margins widen considerably even with just the slightest uptick in gold prices. In all actuality, this is irrelevant for VGZ, since it’s not producing gold yet. The power of association and potential is a strong one when it comes to stocks, however, so this little company is most definitely on the right side of the trend.
As for how long/far Vista Gold could rally, that’s still a function of gold prices; how long/far can GLD rally? The projection I made for gold on Wednesday still stands. Translating that into a firm target for SPDR Gold Trust ETF, the fund should reach the $143 area before hitting any major walls. That’ll also be when GOLD and VGZ start to struggle. Should be a great ride between here and there though.
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