They have three operating mines in mining friendly jurisdictions and cash costs have significantly decreased.  Costs are expected to go down further when New Afton in British Columbia and El Morro in Chile get started.  Both mines have huge amounts of copper.   The copper byproduct decreases the cash costs of the gold to almost nil.  It becomes pure profit.  Their major development project, El Morro in Chile is one of the world’s major gold copper mines and New Afton is an exciting mine that has close to a billion pounds of copper reserve and a million ounces of gold.

The El Morro project is joint ventured with Goldcorp and is one of the world’s largest gold copper mines, with 6.7 million ounces of gold reserve and 5.7 billion pounds of copper. Like New Afton, this is also a large gold and copper mine that will add huge profits in New Gold’s future and decrease cash costs due to its high amount of copper.  This is clearly a company with impressive assets and growth ahead.

Recently the share price has come down due to a negative decision by a Mexican Court regarding one of their three mines, Cerro San Pedro, a massive mine with a million ounces of gold and 50 million ounces of silver.  It was over a technicality in the original Environmental Impact Statement, even though the Cerro San Pedro mine is internationally recognized for its standard on minimizing its affects on the environment.  Actually the whole case is over a land use issue not environmental issues.  Prior to this decision, New Gold received an injunction to continue operations while the legal issues are being resolved.  Due to past precedents, during the appeals process New Gold is likely to continue operations.

It is important to realize that this locale is dependent on mining as a way of life.  There are over 1600 jobs that are reliant on the mine remaining open.  The government certainly doesn’t want this mine shut down as it indirectly contributes half a billion pesos to the Mexican government, which is battling many problems including unemployment and crime. A skyrocketing unemployment rate in the region could be chaotic. The economic health of the region requires the mine to remain open and running.  Recently a newly elected council of landowners in the area are challenging the old council who started the legislation by attempting to drop all litigation against New Gold.

I believe this will be resolved in due time with New Gold revising the Environmental Impact Statement, or that the decision eventually will be overturned.  This may become a long, drawn out affair. However, I highly doubt that this mine will be shut down during this process as it would spur an economic disaster for the local area. 

New Gold (NGD) has been one of the best performing stocks in the mining sector.  They have a top management team, with directors who have built major mining companies and resolve minor setbacks.  I believe this will be one leading gold stock over the next several years because they have the assets and the financial condition to grow.  This pullback is a great opportunity for a long term holder.  Notice how it has pulled back to previous resistance at $5 which is now support.  Also it has come in play with the long term upward sloping trendline which it has touched 5 times successfully.  It is currently close to historically oversold levels.  Coming in play with support, coupled with the oversold conditions provide long term investors a prudent market entry point.  Subscribers who have followed my advice in my free newsletter at goldstocktrades.com are now up over 100%.

Disclosure: I own shares of New Gold.

Stock prices move in trends.  In a bull market, it is quite often easy to identify the ascending bottoms.  Being familiar with trendlines allows the investor to enter long term bull markets when they are oversold and at key support.  An investor must always be aware of a stock’s underlying long term trend. This can be counter-intuitive and awkward, as most times when it comes down to support you have to think against the market herd and buy when others are selling.  It’s like buying a winter coat in the heat of summer. Gold is on sale, and presenting a low risk, high reward trade, but it requires non conformity with the crowd which is not an easy task for anyone.  Many of us like to be in what’s hot now situations, rather than seeing the bigger picture and entering into a trade when it is uncomfortable.

Gold is now at my buy point of the rising long term trend support line.  GLD touched that line 6 times, which signifies that this trendline is a reliable point of support.  The significance of this line is that it is not steep, which also brings a higher probability that GLD will find support here.   It is also oversold.  Continued weakness here and a break below this long term trend would be troubling and highly unlikely.  If there is a break most likely it would be exhaustive, meaning that it will shake out a lot of shares before the next move higher.  I do not see $1200 as a top in gold as there are no technical signs of a major top.

On the other hand, financial stocks may be finding key resistance here following a low volume rally.  As investors are digesting earnings reports that claim credit is improving and lending is increasing, consumer confidence is weakening and the unemployment rate is still very high.  A jobless recovery is what many are considering we are experiencing.  It seems that this recovery has been good for wall street while main street has not seen an improvement. The financials have found resistance at the 200 day moving average and have now failed four times, significantly breaking through this point of resistance.  Historically speaking, after a few failed rallies a major drop could occur.

At the writing of this article, housing has also had a significant reversal after recent data showing an increase in pricing in some metropolitan areas.  Investors are selling home building stocks on positive news, which  indicates that there is some caution over what the real estate market will resemble after the home buyer tax credit expires.  The chart shows a clear reversal and I expect that the rally in equities will be coming to an end and that gold’s poor summer performance will be different this fall as many weak hands were shaken out.  An explosive fall rally into new highs is expected as I still have a target of $1400 by year end.

Disclosure: I own shares in gold and silver mining stocks.