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Workers stand beside machinery in the Kumtor gold mine in Kyrgyzstan in this file photo. (VLADIMIR PIROGOV/REUTERS)
Workers stand beside machinery in the Kumtor gold mine in Kyrgyzstan in this file photo. (VLADIMIR PIROGOV/REUTERS)

Schizas’ Mailbag

Keep your powder dry with gold miners Add to ...

Hi Lou,

It takes courage to invest in a gold miner these days, but isn’t that when one should contemplate it, when everyone else runs?

What do you think of Timmins Gold Corp. or Alamos Gold Corp.? I like them both. AGI has a small dividend, but TMM may have more upside.

Thanks,

Joyce

Hey Joyce,

Thanks for the assignment.

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Baron Rothschild, the 18th century British aristocrat, was credited with coining the phrase “Buy when there is blood in the streets, even if the blood is your own”. The sentence provides a succinct definition of contrary investing which advocates swimming against the tide and finding value in the rubble remaining after a bout of panic selling. However I think it should be said that you need to confirm the bottom and not anticipate the bottom. There are few things worse than finding new lows with your hard-earned capital.

Given the state of affairs in the precious metals sector it would be prudent to be cautious given the aggressive selling that has dominated the markets for gold and silver.

A review of the charts for Timmins Gold Corp and Alamos Gold Corp will provide you with additional information to help you with your decision.

The three-year chart for TMM indicates that the stock is operating under a death cross that formed in April of 2013 and that the shares have broken below support at $2.20. The MACD and the RSI both generated sell signals in June as the shares met resistance along the 200-day moving average in the $2.75 range.

The MACD and the RSI on the six-month chart for TMM are not generating a buy signal just yet, suggesting that sellers are still in control of the market. What you need to keep in mind is that gold enjoys a period of seasonal strength that begins in July which could set up a trade in the next few weeks.

The three-year chart for AGI tells the tale of a stock under the influence of a death cross that formed in January 2013 and the selling pressure that has dissipated the capital of investors who failed to preserve their capital. The MACD and the RSI both generated sell signals in June when the stock was trading at $15.00.

The six-month chart for AGI is not providing much evidence that we can anticipate a reversal of the downtrend that has dominated trading since November of 2012.

At this point I think that you have to keep your powder dry before committing your capital. The price of gold still hasn’t found a bottom and until it does I don’t think the these miners will lead the markets. If I had to pick one of these two I would go look most closely to AGI given that their cash cost per ounce is lower.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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