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VIDEOGold Rushing on Into Autumn
By
Josh Lipton Sep 01, 2010 3:30 pm
We're now in the seasonal sweet spot for gold and gold stocks.
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The yellow metal climbed 5.7% last month. Historically, the August price tends to rise only 2.5% above July. Gold is now nearing its settlement high of $1,257 an ounce reached on June 18. Year to date, it’s up 13.3%.
As we write here in the early afternoon on Wednesday, the SPDR Gold Trust ETF (GLD), which tracks the price of bullion, is down 0.2%. The Market Vectors Gold Miners ETF (GDX), which includes holdings like Barrick Gold (ABX), Goldcorp (GG), Newmont Mining (NEM), AngloGold Ashanti (AU), and Kinross Gold (KGC), is down 1.2%.
Multiple engines have been driving gold’s run to the upper right-hand corner of the chart, say market pros.
For one, investors have turned to gold as a safe-haven investment in response to an uncertain economic environment. There's been a steady stream of downbeat data sparking worry about a US economy losing momentum, from free-falling existing home sales to volatile initial jobless claims.
Chicago Federal Reserve Bank President Charles Evans recently said that the risks of a double-dip recession have risen in the last six months. “A double dip is not the most likely outcome but I am concerned about how strong the recovery will be,” he said.
Analysts at CIBC World Markets in Toronto, who see $1,400 gold next year, remind us that during the Great Recession, “gold was one of the only investment classes that provided positive returns. This fact will not be forgotten if the next recession materializes.”
Tom Pawlicki, the precious metals analyst at MF Global, expects the gold market to maintain its drive to the upside, with prices likely advancing toward $1,270 over the next couple weeks.
“The dollar, Treasurys, and gold have been the safe-haven targets,” says Pawlicki. “That is still the case with gold. Since the August 10 FOMC meeting, stocks are down 7.5% while gold is up 4.3%. People are looking at a track record that looks favorable for gold, whether that’s because of safe-haven status, portfolio diversification, or just pure asset performance.”
Lance Lewis, president of Lewis Capital, chalks up gold’s surge in part to a broader reason: The Fed will print money again in response to growing US weakness, he says, which is bearish for the buck and bullish for the barbarous relic.
“I don’t see how the dollar doesn’t experience a major decline this fall, which would obviously also dovetail with the bid we are seeing in gold and gold stocks at present,” Lewis says.
Finally, while there are no promises that historical patterns will mirror established trends, we’re now headed into the seasonal sweet spot for gold and gold stocks.
This is the time of year when gold jewelers typically do their biggest business. September, in particular, has been the best month of the year for gold and gold stocks, notes Frank Holmes, CEO and chief investment officer of US Global Investors.
In a typical year, the September price rises 2.5% above the August price. And to make the case even more compelling, Holmes says, the gold price has risen in 17 of the 21 Septembers since 1989, by far the best success ratio of any month of the year.
September is historically an even better month for gold stocks as measured by the NYSE Arca Gold Miners Index (GDM).
A contrarian note of caution, however, is offered by Mark Hulbert, who argues this morning in his column that sentiment indicators look bearish in the short term. Specifically, the Hulbert Gold Newsletter Sentiment Index (HGNSI) now stands at 52.1%, the highest reading in more than seven months.
Lewis disagrees: The HGNSI is up from single digits in August, he says, but it’s not what he would consider “nose-bleed levels.”
In addition, he says that Market Vane’s bullish consensus for gold is 74%, which was last seen on June 25. Intermediate peaks in the price of gold over the past several years have come with this Market Vane bullish consensus closer to 90%. At the moment, this indicator, like the HGNSI, is still just coming off of depressed levels near 60%, which are typically associated with important lows, says Lewis.
No positions in stocks mentioned.
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