RBC: Sell Gold Positions Now; Buy During Summer

In the short term, investors should take profits in both gold and gold equities as the summer usually brings a slowdown, and the U.S. Federal Reserve’s easing cycle may be coming to an end. They should then consider buying at lower levels in June and July since there should be a rebound in the gold price in September and October, which is typically a period of seasonal strength.

This is the view of analysts at RBC Capital Markets, who noted that the average one-year return on gold equities following the beginning of an interest rate cutting cycle by the Fed is 17%. The current cycle began roughly six and a half months ago and gold equities have returned more than 20% since. Meanwhile, the average cycle lasts roughly eight months, they told clients in a note.

They noted:

As the positive impact of a rate cutting cycle takes effect and the economy recovers, gold generally begins to underperform the broader market.

So while RBC thinks gold will likely consolidate at lower levels, analysts do think it will make another run at US$1,000 per ounce later in 2008. They also think recent speculation that the IMF could sell up to 400 tonnes of gold is already priced into the market.

As for specific gold producers, RBC prefers Kinross Gold Corp. (KGC), Harmony Gold Mining Co. (HMY), Newcrest Mining Ltd. (NCMGY.PK), Centerra Gold Inc.[CG/TSX], Jaguar Mining Inc. (JAG) and Western Goldfields Inc. (WGW), recommending that clients boost their positions in these names during the weaker periods ahead.

KGC vs JAG vs. NCMGY.PK vs HMY vs. WGW 1-year chart:

Comments

[sorgmot:]

Robert Prector has followed the Elliot Wave analysis of US dollar gold prices over long historic periods. See his book "At the Crest of the Tidal-Wave" for many good graphs and an ongoing Elliot wave projections. The downward correction in US dollar gold prices has ended in 1999 at $270.00 to the ounce. A major upward wave began at that time. That wave is still in process according the Elliot wave picture it portrays on a graph. We have that picture on a click spot on our site if you will go to commodities and then the Moore click spot and then pick gold.

Another pattern to notice is that gold prices and gold mining stock prices expressed in US dollars tend to rise for 2 years after the US Federal Reserve bank cuts interest rates dramatically after increasing them over a 3 or 4 year period.

You can reach our site at financialtrax.googlepa...

2008 Apr 12 01:00 PM

[Blairman:]

Garbage by RBC. We're not looking at average cycles for anything this year.

2008 Apr 16 07:13 AM

[iman:]

Good idea if you only follow charts but the fundimentals for the dollar are dangerous. I'll just hold through the summer.

2008 Apr 16 12:48 PM