Expect A Better-Than-Expected Fourth Quarter From The Mining Companies

 

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Gold ended the year at $1182/oz which means its closing price is now down two years in a row. This has obviously caused a lot of mining companies trying to adjust to ‘the new reality' by slashing costs but unfortunately the market hasn't really taken these steps into consideration yet as both the GDX and GDXJ ETF's have been continuously decreasing as well and ended the year just above their bottoms as you can see in the next charts.

 

GDX Chart

 

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GDXJ Chart

 

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Even though the RSI (Relative Strength Index) of both ETF's isn't indicating an oversold situation, we at Sprout Money are quite optimistic about the start of 2015 – that is, if gold doesn't continue its slide. We would like to point out two specific factors which could (and should) contribute to a better than expected operating and financial performance of gold mining companies.

First of all, even though the RSI isn't that low anymore, the trend in the Money Flow Index (MFI) is quite positive and seems to have bounced on what could be considered to be the bottom line. The MFI is a useful metric as it shows the buying and selling pressure in certain equities and in the final few days of 2014 here definitely was some upward pressure which started even before the end of the tax loss selling. That's an encouraging sign, and we will be looking forward to see if this trend continues into the new year.

But that specific technical indicator isn't the only reason why we are cautiously optimistic about a good start of 2015 for gold mining equities. One of the major complaints in 2014 was that a strengthening dollar was really bad news for the gold price. That's true, but the positive takeaway of this currency appreciation is conveniently being ignored. A stronger dollar with a relatively stable gold price is a blessing for gold mining companies which are operating outside the USA.

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