Sino Gold Limited (ASX:SGX) is an Australian company involved in the exploration, development and production of gold exclusively in China. The company is primarily focused on the development of the Jinfeng Project.
As many other commodities-related stocks, SGX has suffered from the broad decline of the tangible assets those past two months. But it had also declined between March and May, while the equity markets were sharply rebounding. The fact is that Gold prices was effectively retracing from the peak posted above 1,000$ an ounce. As a result, there is a strong positive correlation between gold prices and the SGX price development. The chart shows the SGX price action (in black) and the Gold price action (in red).
Many indicators argue for a strong rebound of the Bullion, in the current context of financial crisis and uncertain business climate. Actually Gold price soared yesterday, the biggest gain ever posted in one day, as the credit market turmoil convinces investors to pull their money out from equities and to put it back in safe-haven assets. What is safer than Gold?
Due to different time zone, the present chart does not show this huge bounce posted overnight on the US session. However an ounce is now trading around $870. It means that Gold has rebounded by 17% in just one week after it posted a low at $740 on September 11.
Regarding SGX, a few signals argue also for a rebound. This may be good vehicle to take advantage of the Gold come-back.
The stock actually lost 66% of its value between the historical high posted in last March, at $8.81, and the recent low posted last week (at $2.95). The stock has been obviously oversold and a retracement is more than likely.
The MACD just triggered a bullish signal yesterday, as it crossed above its signal line. So did the Money Flow Index, which is an oscillator that accounts for volume action. It shows that smart money flies back into the stock. When price and volume both move on the upside, it’s a good sign that a bullish momentum is building up, and that a positive trend may be possible.
A significant retracement of the recent decline (between point A and B on the chart) is likely. It would lead therefore the price towards $4.3 (23.6% Fibonacci ratio) as the first objective. However ia trend is developing, $5.2 then $5.9 would become the main targets (38.2% and 50% retracement ratios).
Good Investing,
Gabriel
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