|
The usually
suspect gold bugs and perma-bulls have been quite noisy over the last few
weeks trying to convince bullion traders and stock speculators that the price
of gold and ergo, the market capitalization of gold stocks are on the verge
of a big break-out to the upside. And the unholy believers amongst
this cult are still predicting $2000 or $5000 or even $10,000 an ounce, just
as they have since the global economic crisis nearly 10 years ago.
One well-known
pundit has been so bold as to call for $10,000 for an ounce of gold by
August 1. It seems he may have appropriated the modus operandi of
born-again televangelists who prophesy sequential dates for the end of the
world as we know it.
This cartoon
aptly illustrates my go-to gut reaction to any silly notion:
I opine that
any forecast for a near-term breakout of gold to the upside is founded purely
on hope and a prayer and will show you why in this short missive.
Let’s examine
historical evidence pertinent to my analysis. Below is a normalized, 22-year
composite record for the price of gold from June 1 to October 31 with 2018’s
performance shown in black. Note that each 21-day interval
approximates one month of trading.
Our standard
treatment of seasonal trends is an excellent predictor for the price of gold
as its 22-year term encompasses multiple market cycles with bull, bear, and
neutral years:
 
The period
from the middle of June to Labor Day, roughly trading days 11 to 65, is
universally recognized as “the summer doldrums” for the major stock markets
and gold. Most professionals in the financial and industrialized world take
vacation time for a significant portion of this interval and market activity
drops concomitantly.
Historically,
the price of gold has been flat to negative from early June thru mid-July
then upticks a bit thru Labor Day. Early September to mid-October is a strong
period for gold as market activity picks up and the Indian buying season
kicks in. That said, gold’s average gain from mid-June to mid-October is only
4%.
Now let’s turn
our attention to gold’s recent relationship with the US dollar.
Here is a
scatter diagram showing the value of the dollar index (DXY) and the price of
gold (Au) over the past 200 trading days and in tabular form, the 50-day,
100-day, and 200-day correlation coefficients:
|
DXY - Gold
|
|
50-Day
|
-0.94
|
|
100-Day
|
-0.88
|
|
200-Day
|
-0.85
|
The strong
inverse correlation coefficients show that over the past 10 months, when the
dollar goes up, gold goes down, and vice versa.
DXY has been
on quite a roll since mid-April, rising from 89.4 to 94.8 for a gain of 6.0%.
During this time, gold dropped from $1346 to $1279 for a loss of 5.0%. These
numbers further illustrate the ongoing negative dollar-gold relationship.
So what
factors could make the price of gold break out to the upside over the next few
months? I submit three ideas for your consideration:
·A
geopolitical event that causes a surge in safe haven gold buying.
·A
severe downturn in the US dollar or a significant change in the current
dollar-gold relationship.
·Massive
movement of hedge funds onto the long side of the paper gold market.
That said, I
think the current paradigm for gold is likely to continue with the seasonal
low still to come within the next two months and a rising price likely to
commence prior to Labor Day and continue thru mid-October.
I buy gold on
dips; perhaps the current price is a good place to start accumulating?
Meanwhile, I
invite you to revisit my forecasts in the mid-fall and see how I did versus
the buggy-brained gold bugs.
Ciao for now,
Mickey Fulp
Mercenary Geologist
Acknowledgment:
Troy
McIntyre is the research assistant for MercenaryGeologist.com.
The Mercenary
Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth
Sciences with honor from the University of Tulsa, and M.Sc. Geology from the
University of New Mexico. Mickey has 35 years experience as an exploration
geologist and analyst searching for economic deposits of base and precious
metals, industrial minerals, uranium, coal, oil and gas, and water in North
and South America, Europe, and Asia.
Mickey
worked for junior explorers, major mining companies, private companies, and
investors as a consulting economic geologist for over 20 years, specializing
in geological mapping, property evaluation, and business development.In
addition to Mickey’s professional credentials and experience, he is
high-altitude proficient, and is bilingual in English and Spanish. From 2003
to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and
British Columbia.
Mickey
is well-known and highly respected throughout the mining and exploration
community due to his ongoing work as an analyst, writer, and speaker.
Contact:
Contact@MercenaryGeologist.com
Disclaimer
and Notice: I am not a certified financial analyst, broker, or
professional qualified to offer investment advice. Nothing in any report,
commentary, this website, interview, and other content constitutes or can be
construed as investment advice or an offer or solicitation or advice to buy
or sell stock or any asset or investment. All of my presentations should be
considered an opinion and my opinions may be based upon information obtained
from research of public documents and content available on the company’s
website, regulatory filings, various stock exchange websites, and stock
information services, through discussions with company representatives,
agents, other professionals and investors, and field visits. My opinions are
based upon information believed to be accurate and reliable, but my opinions
are not guaranteed or implied to be so. The opinions presented may not be
complete or correct; all information is provided without any legal
responsibility or obligation to provide future updates. I accept no
responsibility and no liability, whatsoever, for any direct, indirect,
special, punitive, or consequential damages or loss arising from the use of
my opinions or information. The information contained in a report,
commentary, this website, interview, and other content is subject to change
without notice, may become outdated, and may not be updated. A report,
commentary, this website, interview, and other content reflect my personal
opinions and views and nothing more. All content of this website is subject
to international copyright protection and no part or portion of this website,
report, commentary, interview, and other content may be altered, reproduced,
copied, emailed, faxed, or distributed in any form without the express
written consent of Michael S. (Mickey) Fulp, MercenaryGeologist.com LLC.
Copyright
© 2018 Mercenary Geologist.com, LLC. All Rights Reserved.
|
|
