Is Goldcorp Inc. Headed to $40?

Goldcorp Inc. (TSX:G)(NYSE:GG) is at a pivotal point right now. Here’s what investors need to know.

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Goldcorp Inc. (TSX:G)(NYSE:GG) has been on a rollercoaster ride for the past two years and investors are wondering if the stock is finally going to break out of its trading range, or simply roll over and fall back to new lows.

Let’s take a look at the current situation to see if you should put Goldcorp on the watchlist.

Gold market

Gold hit a multi-year low around US$1,140 per ounce in early November before catching a bit of a tailwind that took the precious metal all the way back to the $1,300 mark.

The surge brought some life back into mining stocks but a pullback has the gold price sitting just above $1,200 and the market is wondering if this is just a pause in a new bull run, or the beginning of a another big slide.

The recent rise in the price of gold was a bit unique in the fact that it occurred alongside a sharp increase in the U.S. dollar. When the American dollar moves higher, the price of gold usually falls because it is priced in the U.S. currency.

Sometimes, the two move in unison, especially when the market is concerned about financial or political instability. For example, gold and the U.S. dollar rose together in 2009 when Greece announced its budget deficit was going to soar.

Gold’s renewed appeal as a safe haven is currently being driven by conflict in Ukraine, a possible Euro exit by Greece, the threat of a Chinese property meltdown, and the increasing risk of a new ground war in Iraq.

The global race to devalue currencies is also having an effect. When considered in terms of other currencies like the Canadian dollar, Mexican peso, and euro, the price of gold is holding up well. If we are on the cusp of another global breakdown in paper-currency confidence, the gold market could be setting up for a new surge.

This occurred in 1978-80 when the oil crisis, a Soviet invasion of Afghanistan, and double-digit inflation triggered fears of a global meltdown in the monetary system.

How significant could the move be?

In the 1978-80 crisis, gold rose from $200 to $800 per ounce. The price then dropped significantly after hitting the 1980 peak.

Goldcorp fundamentals

Getting back to Goldcorp, the miner is arguably the prettiest house on an ugly street. The company’s stock is expensive, but for good reason. Most miners are struggling with debt-heavy balance sheets, but Goldcorp is one of the few exceptions.

With little debt and a healthy cash position, Goldcorp has the size and firepower to acquire strategic assets at a time when few others are able to make the move. The company is one of the lower-cost producers among the large gold miners and has a strong project pipeline that should deliver long-term growth. Production is expected to increase by at least 15% in 2015 while all-in sustaining costs could drop below $900 per ounce.

Technical outlook

Technical traders are looking at Goldcorp’s share price very carefully right now. The stock has taken three runs at $33 in the past two years but reversed course each time. The recent surge also stalled out just short of that mark. If Goldcorp can get above $33 in the next few weeks, it could be the start of a big move toward $40. If not, investors are probably looking at another failed breakout and the stock could quickly slide back below $25.

Should you buy?

If you are looking to add a gold miner to your portfolio, Goldcorp is probably a safe bet, despite its expensive price. The company has a stable balance sheet and is in a good position to capitalize on consolidation opportunities. It also pays a monthly dividend of US$0.05 per share that yields about 2.6%.

At some point, global markets will have to pay the piper for all the money printing that is going on. Whether or not that moment is upon us is anyone’s guess, but I am comfortable being a bit early to the party and happy to collect some dividends while I wait.

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.

Fool contributor Andrew Walker owns shares of Goldcorp Inc.

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