After a January dip and a February peak, and then a further dip for the turmoil around the Japanese Tsunami, investors must be wondering "what's next for the Gold price?"
A review of history may give the investor some ideas, for as they say, history may not repeat itself, but there may be an echo. This is not precise and it is not technical analysis, but there does seem to be definite phases that the rising gold prices move through in the year.
Using the GLD ETF as a proxy for the gold price, the following chart plots the previous two years of daily closing prices:
(Click chart to enlarge)
The author did not use 2008, as the economic disruptions at that time may give unreliable data. Also the years prior to 2008 were not used as the author believes the world changes with time and the economic drivers back then may have changed too much for any relevance to 2011.
Examining the chart, one can definitely pick out the phases that the Gold price seems to go through during a yearly cycle. Following are the ascertained phases with a brief description for each.
Dip at year beginning
After the gains in the usual strong fall season, gold prices seem to take a dip at the beginning of the new year. Perhaps it is just to take a breather or to consolidate a while before starting to rise again, possibly in conjunction with the coming of the lunar New Year for Asian countries. Note that the phases do not have a definite start and end date, but this is a loose correlation from year to year.
Peak at year beginning
After the dip at the start of the new year, there appears to be a gold price peak that follows relatively soon (within one month of the dip). Then there is indecision, as the gold price meanders up and down, akin to what is happening currently. Some pundits are calling for a fall and others for a further rise. There is no definitive action.
Early Summer Peak
Then a bit later, toward the end of spring, the gold price seems to take a final push upward before resting for the summer. This peak is not very strong and may not be a long period of advance, it may not even be higher than the previous peak as in 2009. It is merely a last push upward before the summer's onset.
Summer Doldrums
Summer is usually when the gold price takes a rest. In 2009, the rest for gold was almost 3 months long. In 2010, Gold did not take barely a month's rest, before in late July, it started rising in the annual fall rally.
Strong Fall Rally
Fall is the strong season for the gold price. The price rises are long and strong, lasting almost until the new year. In both 2009 and 2010, major gains for the gold price were made in this fall rally. Toward the end of October and early November, there may be a small dip in the Gold price. This may be attributed to the annual portfolio rebalancing that major funds perform.
Santa Claus Rally
Finally in late November and early December, there is usually a Santa Claus rally. This caps the year for the gold price rises making gold investors a jolly ol' group.
For the investor to have a basic understanding of the gold price phases as we move through the year may allow for better positioning in the markets.
Prediction of Gold Price Gains for 2011
Using the above information on the chart and examining the historical data that gives percentage gains of about 25% in 2009 and 29% for 2010, the author calls for between a 30% to 35% gain this year for the gold price. This will equate to a range for the gold price to end 2011 at from $1847 to $1918 in USD. Of course this is nowhere near scientific and it is merely an educated guess.
Positioning for the Gold Price Gains
As the gold price is currently undergoing a minor correction, the author is not holding any major gold stocks. However, I am presently watching the gold price and awaiting an opportunity to re-enter positions in Goldcorp (GG), and Franco Nevada (FNNVF.PK) via warrants. Also, I hold positions in several gold and other metals exploration juniors including Silvermex (GGCRF.PK), Almaden Resources (AAU), Victoria Gold (VITFF.PK), Avnel Gold Mining (ANVZF.PK), Belvedere Resources (BLVDF.PK), Tarsis Resources (TARSF.PK), Adex Mining (ADXDF.PK), Shore Gold (SHGDF.PK) and Selwyn Resources (SWNLF.PK).
Disclosure: I am long GGCRF.PK, AAU, VITFF.PK, BLVDF.PK, TARSF.PK, ADXDF.PK. I may initiate a position in GG over the next 72 hours.
Disclaimer: The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.
