In the last 5 trading days, Agnico Eagle has shot up $4.87 or 13.57% and has made a significant technical breakout.

So what’s next for this high quality gold stock?

Well the important thing to note here is the breakout. AEM has been in a bit of a downtrend since peaking at nearly $45 in late December 2006. This recent surge in the AEM stock price has basically broken this trend but the true test is whether AEM can hold onto these gains.

The next technical test we see is at the $42 mark, where AEM has struggled to get through in the past. After that, well all that is left to challenge is the all time highs!

However it should be noted that AEM is looking quite spiky and may suffer a small correction.

The STO is very high, in the sell zone and the black line has nearly crossed the red, a negative sign, and indeed on the FAST STO indicator, this has already happened. The RSI is also past 70, at 70.59, giving us a bearish signal. So AEM could turn a bit bearish in the next few days and it make take some time to consolidate its gains and challenge the resistance at $42 and the all time high made in late December last year.

Why has AEM risen so much?

Well it rose a lot on news of their Q2 results but there could be other reasons.

There are some wild rumours flying around that Meridian Gold might make a bid for AEM in an effort to discourage Yamana from taking them over. However at the moment this is nothing but a wild rumour but we shall watch the situation closely. It would be surprising if this happened as AEM has previously stated that they do not want to be takenover. Perhaps a more likely reason could be that many traders have gone short on AEM, with 4 million shares ’short’ last month, and these traders could be covering their positions. But, it could be that good old fashioned reason for buying a stock, good fundamentals. AEM certainly has great fundamentals and perhaps this was just a case of investors realising what a baragain this stock was and how much it stands to gain from rising gold prices.

We continue to hold AEM and keep it as a BUY on our gold prices portfolio of gold stocks.

Agnico Eagle trades as AEM on the NYSE and the TSX.