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Possible Scenarios For gold this summer


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Two short-term scenarios for Gold market

Written by Jeff Nielson

Thursday, 02 July 2009 10:00


Bullion Bulls Canada - Commentary


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Two short-term scenarios for Gold market

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At the beginning of May, the usual chorus began that gold was about to have its annual spring sell-off. Those voices included not only the anti-gold cabal, but also a number of commentators inside the sector.





The prevailing “wisdom” was that since gold always sells off in the Spring that it must do so again. As is usually the case in the market, there was no actual analysis of why gold tends to sell-off in the spring – and if those conditions were present this year.





There are typically two reasons which work in unison to generate a pull-back in the price of gold – from May through the end of August. Obviously, one of the bases for a pull-back is that gold typically has a large rally in the Spring, the culmination of the strong season for gold: from October through March. This year, there was no significant rally from January through March.





The second fundamental factor which typically helps to create weakness in the gold market is a large decline in India gold imports – as their “wedding season” draws to a close, which is a cultural driver for gold purchases. This year, there have only been minimal imports from India (see “Is India now irrelevant to the gold market?”).





Thus, there were no fundamental factors acting to push the price of gold lower. Observing this fact, I refused to sell any of my own positions. Yes, there is general weakness in the market over the summer months, and (even now) a sell-off cannot be ruled out. However, my own analysis was that risk/reward clearly favored holding onto precious metals positions.



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