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In this essay we will present the expectation for the price of gold to
rise during January and February, based on seasonal trends.Charts
are courtesy Stockcharts.com unless indicated.
The energy for a rise in gold prices comes from at least four
different sources.
#1 U.S. Federal Government deficits.
This chart courtesy Federal Reserve Bank of St. Louis and
Mybudget360.com shows the widening of the U.S. Federal Government deficit
since 2008.The gap shows no signs of narrowing, as it requires increased
taxation (which stifles economic activity), or decreased spending (something
Mr. Obama and most politicians find hard to do).Deficits are a source of
energy for precious metals (as printing presses are used to make up the
shortfall).
#2 Real Interest Rates.
This chart shows the real
rate of interest.It
is derived at by deducting price inflation as expressed by the CPI, from
current Treasury Yield.This real rate is
presently -1.75%.This means money that is held in Treasuries is losing out by
more than 1.75% per year (paying taxes on the yield adds insult to injury).In
view of the fact that the official CPI rate is regularly understating the
actual rate of price inflation, the real
rate of inflation is
even worse than this chart portrays.In any event,
this negative trend provides energy for gold and silver to rise in price.
#3.The
expected rate of price inflation
Featured
is the daily bar chart for TIP, the bond fund that is indexed to inflation.The people who buy shares in this fund are
concerned about price inflation, and the trend is clearly upward bound.
#4 Currency destruction.
This chart courtesy Federal Reserve Bank of St. Louis shows the MZM
Money stock continues to rise. In the past four years the Obama
administration, in concert with the U.S. Congress, has added five trillion
dollars to the U.S. Federal debt.
At the same time five Central Banks printed seven trillion dollars in
new currency.Thus twelve trillion dollars that did
not exist in 2008 are now looking for a home. This monetary destruction
produces price inflation (after a lag - as it takes the average person a
while to catch on).
Like gold, US dollars have value
only to the extent that they are strictly limited in supply.But
the US government has a technology called the printing press that allows us
to print as many dollars as the government wishes, at essentially no cost....Ben Bernanke.
Featured is the weekly gold chart. Since the gold bull market began in
2002, there have been three major corrections.The
first one began in 2006.It took 71 weeks before a new record high price was established.Gold then rose by 50%.The next
correction began in 2008.77 weeks later gold established a new record high.Price then rose by 90%.The current
correction began in 2011.It has been 72 weeks since the last time gold was at
a record high price.In five weeks we will have
matched the 2008 price dip duration.As long as the
four drivers mentioned above remain in place, the expectation is
that gold will continue its overall rise in price.To
take advantage of this trend it behoves us to BUY LOW SO WE CAN SELL HIGH.
This chart courtesy seasonalcharts.com shows the seasonal pattern of
the price of gold on a monthly basis.Historically
gold moves higher during January and February -especially when the
price has dipped during December, (as it did in December 2012).
This chart courtesy Chartsrus.com shows the amount of gold that is
moving through Hong Kong into China.Last month 63
tons of gold moved into Chinese vaults.According to
ZeroHedge.com 90.8 tons moved into Chinese vaults in November.This
was the second highest gross import number of 2012, double the 47 tons
imported in October (which many saw, incorrectly, as an indication of
China's waning interest in the yellow metal), and brings the Year to Date
total to a massive 783 tons of gold.
Featured is GLD the gold bullion ETF.The
Accumulation/Distribution line is at the top.Usually,
when price drops while the A/D line rises, pressure builds on price to follow
the A/D line. The supporting indicators (green lines), are positive.The 50DMA is in positive alignment to the 200DMA
(oval).A breakout at the blue arrow will be the first sign that a new uptrend
is underway.
This chart courtesy Google Trends shows the interest in gold investment as reflected by web searches.High
points on the chart coincide with tops in gold and bottoms (as now) coincide
with bottoms in the price of gold.The trend is
turning up, and that is a positive sign for gold.
èGold at years
end has been higher than at the beginning, every year since yr 2000.The gain during 2012 was 6.9%.
2001 = + 1.96;2002 = + 24.8%; 2003 = +19.5%; 2004 = +5.35%;
2005 = +18.36%; 2006 = +22.95%; 2007 = +31.34%; 2008 = +5.14%;
2009 = +24.3%; 2010 =+29.8%; 2011 =+14.2%; 2012 = +6.9%.
The average is 17.05%.Please note that the % rise in every year below
the average of 17.05% was followed by a year where the rise was higher than
the average.Odds are (no guarantee just odds), that the 2013
increase will exceed 17.05%.
Silver stands to benefit from the same energy that is causing gold to
rise in price.
Featured is the weekly silver chart.The
uptrend is clearly defined by the blue trendlines.A
breakout at the blue arrow will be the first sign of a new leg up.
Featured is PSLV the silver trust.The
Accumulation/Distribution line is at the top.Usually
when the A/D line rises, it puts pressure on price to follow, as happened in August.As long as the AD continues to rise, the
expectation is for price to follow.
Peter Degraaf is a mining stock and bullion
investor with over 50 years of experience.He
produces a daily report for his many subscribers.Ask
for a free copy of a recent report itiswell@cogeco.net
or visit his website www.pdegraaf.com
DISCLAIMER:Please do
your own due diligence.Investing involves taking risks.I am NOT responsible for your trading decisions.
Happy trading!Peter Degraaf<:P:D:><www.pdegraaf.com
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