Lihir Gold Limited (ASX:LGL) is a gold mining, development and exploration company, focused on the Lihir gold mine and processing facilities located in Papua New Guinea.
Yesterday we saw that Sino Gold Mining (ASX:SGX) was likely to take advantage of the strong Gold price rebound. Today we have a look at a similar stock, also strongly correlated with Bullion prices. The analysis is therefore almost the same as the 2 stocks (SGX and LGL) have the same price action.
Two charts illustrate this: the first one is the LGL price development in parallel with gold prices (Gold in red line), while the second one is the LGL/SGX comparison (SGX in blue line). There again the positive correlation of LGL with both Gold and SGX is flagrant.
As indicated yesterday, many indicators argue for a strong rebound of the Bullion, in the current context of financial crisis and uncertain business climate. 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. Yesterday SGX jumped by 22.54% and LGL bounced 15.89%.
As same causes create same consequences, a further momentum is expected for LGL.
Several signals argue also for a positive development.
The stock actually lost 61% of its value between the historical high posted in last March, at $4.39 (well the real historical high had been posted in October 2007 at $4.45), and the recent low posted last week (at $1.6950). The stock has been obviously oversold and, as it has already bounced back impressively, a large retracement is more than likely.
The MACD just triggered a bullish signal yesterday, as it crossed above its signal line. So did the Relative Strength Index, which has quit the oversold area and has been soaring for a week now. The On Balance volume indicator (OBV) provides a running total of volume and shows whether this volume is flowing in or out of a given stock. Here the OBV has also clearly bottomed and has turned upward: money is flowing back into the stock. Once again, if both price and volume 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 is likely. Yesterday the price closed at $2.48, well above the 23.6% Fibonacci ratio. The next objectives are therefore $2.7 then $3.1 (the 38.2% and 50% retracement ratios).
