Gold is currently moving in volatile times and to me at least the debate on where it is going next looks increasingly polarized. While the hot money seems to have abandoned gold and silver to ride the crude oil bandwagon (which will certainly suffer the same drop soon), the old maxim “Sell in May and go away” seems to have been pinned to gold’s lapel.
The reason given is seasonal uncertainty but this May maxim is more associated with stock markets than gold and since the two markets are generally not correlated it seems strange to apply the saying to both asset classes. So how has the gold bull market done during the summer months? The last part of the saying ends with “and don’t come back until Saint Leger’s Day” which falls on the 2nd October.
Let us pull up the numbers between May 1st and October 2nd for the last 6 years.
So in the last six May periods we have gold up in five years and down in one year. The average percentage gain computes as 5.8% which is not shoddy at all for a five month period and if we exclude our negative year, it comes out at an average of 9%. So much for sell in May and go away for gold.
Now gold was at $851 at the beginning of May 2008. Applying our average of 5.8% brings gold to $900 by October. Using the 9% brings it to $927. You may not think that is good enough but if you are parking your wealth to avoid problems in other assets it may serve you well relatively speaking.
Looking at the context of May to October 2008, what could trump this scenario? Could this be a negative summer for gold like 2006? Though gold may come out positive, caution is required. I mentioned crude oil at the top and “top” may be the operative word as the world’s main commodity begins to finish forming a parabolic rise. There is only one way that parabolic rises end and that is with every one trying to hit the exit door with their profits at the same time – i.e. a sharp drop in prices.
Given gold’s historic correlation with oil, I cannot see gold forging very far ahead if oil is going through a correction similar to what we are seeing for gold and silver since mid-March. This summer may yet prove to be a period where single digits gains in gold are something to be appreciated