Why Gold Stocks Continued to Bounce Back

It’s a strong start to the week for this collection of gold miners.

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Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of several gold miners continued to crawl back on Monday as the price of gold broke through a tricky resistance level at $1,300 (U.S.) an ounce.

So what: It’s no secret that gold miners have been battered over the past year, but a recent retreat in the dollar, coupled with Fed Chairman Ben Bernanke’s comments that quantitative easing would remain accommodative and subject to economic conditions, is fueling some optimism over a triumphant rebound in the sector. Among the big movers on the TSX were Detour Gold (TSX: DGC), Kirkland Lake Gold (TSX: KGI), and Eldorado Gold (TSX: ELD) — all up more than 10% — as analysts are naturally being prompted to bake in a higher price per ounce into their valuation models.

Now what: I wouldn’t be so quick to jump into the gold miners just yet. Most foreign exchange developments point to a stronger greenback over time and if the U.S. economy continues to grow at the rate simply expected by the central bank, the Fed will almost assuredly withdraw support eventually. So while the beaten-down sector is certainly good for a short-term bounce, long-term Fools might want to look elsewhere.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned.  The Motley Fool does not own shares in any of the companies mentioned. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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