Is AngloGold Ashanti a buy, ahead of Fed taper?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jun 1, 2021
Updated: Jun 2, 2021
  • Shares of AngloGold Ashanti found support just below the $24.00 level following last week’s pullback.
  • The stock has now bounced from oversold levels of the 14-hour RSI.
  • AU stock is still below the 100-hour MA and this creates a buying opportunity.

Shares of AngloGold Ashanti Limited (NYSE:AU) have pulled back to trade at around $23.80 after an extended period of gains. The stock now appears to have found support around this level, which could trigger the next rebound. The rebound could also be fueled by recent talks that the Federal Reserve will start reducing its asset purchase in the fourth quarter of this year. Under normal circumstances, a Fed taper boosts stock prices while the price of gold suffers, but there is an expectation that the opposite could occur amid economic fears.

Simply put, AngloGold might be the best gold stock to buy now.

Why a Fed taper could boost the gold price

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The global economy is still suffering from the adverse effects of COVID-19 and this means that it could be too early to assume that the worst days are behind us. The US, in particular, was one of the worst affected countries. The world’s greatest economy has spent trillions of dollars in stimulus packages to try to boost economic growth. 

Therefore, there is great concern that if tapering begins too soon, this could upset the current economic stability that is highly supported by the government’s quantitative easing program. 

The government has been injecting money into the economy through asset purchases and if the floodgates are sealed prematurely, it could result in another economic crash. The fear of a financial crisis will drive more investors towards safe-haven assets like gold. 

The recent rise in the gold price suggests that Fed’s taper talk is already sparking fear. A rise in the gold price could boost AngloGold’s stock price further in the coming months. The stock is currently trading at an exciting P/E ratio of 10.15. 

The forward 12-month P/E of 9.36 indicates an expectation of modest earnings growth for the next 12 months. However, looking at 5-years into the future, the PEG ratio of just 0.28 indicates high expectation on earnings growth over the same period.

Source – TradingView

Technical overview

Technically, shares of AngloGold appear to be attempting a rebound after finding support at $23.80. The stock has moved back to the normal trading zone of the 14-hour RSI after recovering from oversold levels. This puts it in a good position to recoup losses in the coming weeks.

The bulls will target short-term profits at around $24.35 or higher at $25.25. Key support levels can be found at $22.76 and $21.79.

Bottom line: buy AU stock’s rebound 

In summary, AngloGold stock looks like a strong buy ahead of what could be a major rebound. Last week’s pullback has created an opportunity for investors to buy the stock ahead of an extended rally in the price of gold. The gold price is up nearly 8% since the start of May. The AU stock has gained 11.72% over the same period.

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