Temporary Dip in Gold Mining Stock Presents Buying Opportunity
Contributed Opinion

With its gold production set to ramp up substantially this year and in years to come so that increasing revenues rapidly reduce outstanding debt, the outlook for Soma Gold Corp. (SOMA:TSX; SMAGF:OTCMKTS) could scarcely be brighter. With AISC (all-in sustaining costs) currently at about US$1200 - US$1300 the company is already benefitting from substantial margins at current gold prices.

Whilst the fact that management currently owns about two-thirds of the stock rules out a hostile takeover, their big investment in the company is certainly a vote of confidence and, in addition, the company's large land holdings in a gold-rich district hold out the strong possibility of additional discoveries of high-grade ore.

Therefore, the sharp dip in the company's stock price over the past week or so, which was occasioned by the CEO of the company stepping down temporarily for personal reasons coupled with a dip in Precious Metals' Stocks generally, is viewed as presenting an excellent opportunity to buy the stock at a good price for as we will proceed to see as we examine the charts, the technical outlook for the stock is excellent.

We will start by looking at the long-term 5-year chart in order to gain an understanding of the Big Picture. On this chart, we see that, following a severe bear market into the Spring of 2020, the price has since moved broadly sideways, marking out a giant Pan & Handle base pattern with the rally in the Spring of 2023, completing the Pan and the price then moving sideways since to form the Handle of the pattern that once complete should lead to a breakout into a major bull market, which will be signaled by the price advancing to overcome the resistance at the upper boundary of the pattern.

Zooming in, the 18-month chart enables us to view the early 2023 rally and the trading range that followed, which is the handle of the Pan & Handle base, in much more detail. We can see that the sharp drop over the past week or so, which was occasioned largely by the news about the CEO, crashed a support level and brought the price down close to a zone of stronger support, which is expected to limit any further downside and this drop has resulted in the stock becoming quite heavily oversold, as shown by the MACD indicator.

This, then, is a good place for it to turn higher again, perhaps after some stabilization in this area, as the market starts to appreciate that, given the outlook for the company and for gold itself, the business relating to the CEO is little more than "a storm in a teacup" that it will soon take in its stride.

On the 6-month chart, we can see recent action in much more detail. In particular, when the price dropped sharply on the news about the CEO coming out on the 16, it closed with a high-volume "bull hammer" candle whose upside volume caused the Accumulation line to rise on that day, and in the end, it didn't actually close down much, although it has since dropped back some.

Then yesterday, another bullish candle formed on good volume, a so-called "inverted hammer," where the price tries to rally during the day but can't hold the gains and closes very near to where it opened and the reason that this is bullish is that it shows significant buying of the stock that has the effect of draining off overhanging supply at the slightly higher price — these candles are usually followed by a more sustained rally.

The conclusion is that the charts for Soma Gold present a very favorable outlook for all timeframes, which is for a sustained and substantial bull market, and thus, the current dip is viewed as presenting an opportunity to pick it up at a very good price.

Soma Gold Corp.'s website. 

Soma Gold Corp. closed at CA$0.49, $0.38 on January 22, 2024.

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Clivemaund.com Disclosures

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.