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Review of last Seven Years Suggest Gold Nearing Summer Lows Prior to Rallying Strongly into Autumn
Written by Metals and Minerals Digest   
Wednesday, 30 July 2008 17:14

NY Spot close July 29, 2008: Gold $917.30, Silver $17.32. Commonly known as "the Summer Doldrums", this years occurrence is no different. Astute investors would do well to make their selections of precious metals related stocks prior to anticipated, historically supported, autumn rally.
A review of the last seven years gold price action shows a seasonal pattern that often results in lows in July or August prior to strong rallies into year end.


Factors supporting gold prices:


  • High crude oil, inflation and dollar concerns are centre stage. The gold/oil ratio is now at the lowest levels seen for decades – although comparing the two is becoming more a scenario of comparing apples and oranges since oil is driven more by industrial demand whereas gold is driven more so by investor demand - recent trading activity suggests gold is detached accordingly; even though oil has sold off moderately, gold has not relatively.
  • Global growth has been able to progress as it has detached from the United States which is braced for further fallout from the crisis in credit markets caused by problems in the U.S. high risk mortgage sector.
  • Growth in demand, particularly from an expanding middle class in the developing world, would continue to be a main driver of gold prices in the long run.
  • Additional supply of 200-300 TPY gold production is likely to be absorbed by a combination of wealth creation in China, petrodollars in Russia/Mid-East, and ETF inflows. Total demand for gold is around 3,600 metric tons but global miners produce only around 2,450 metric tons annually, with the deficit compensated by central bank sales and recycling. The gap between demand and supply is likely to continue.
  • Currently strong jewellery and industrial demand may diminish nominally in 2008, however a willingness to decrease dollar dependence by the central banks in Russia, China and the Arabic region will increase; a small shift of the percentage of petro dollars into gold investments will cause gold market prices to seek a higher trading range.
  • Geopolitical risk from U.S. and Israel militarily confronting Iran is wild card and most volatile catalyst for gold

See charts:
 

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