Summary
Gold is set to continue its record run this year ; Can prices double in the next 12-36 months ie. go to 1240$ -1620$- 2450$ ?? We begin Gold and the Dollar with a look at Gold Seasonality
Since the beginning of its long-term bull market gold has ALWAYS risen between mid August and the final trading day of the year. The gain over this period has ranged from 1.1% to 24.7%, with an average of 11.4%.
Year: Net Change in Spot Gold Price Between 15th Aug and 31st Dec:
2001 +1.1%
2002 +10.5%
2003 +14.4%
2004 +9.6%
2005 +17.0%
2006 +2.1%
2007 +24.7%
2008 +12.0%
2009 + 8.25% 17 August to 22 Sept
Since the beginning of its long-term bull market gold has ALWAYS risen between mid August and the final trading day of the year. The gain over this period has ranged from 1.1% to 24.7%, with an average of 11.4%.
Year: Net Change in Spot Gold Price Between 15th Aug and 31st Dec:
2001 +1.1%
2002 +10.5%
2003 +14.4%
2004 +9.6%
2005 +17.0%
2006 +2.1%
2007 +24.7%
2008 +12.0%
2009 + 8.25% 17 August to 22 Sept
Analysis
In other words, the seasonal pattern represents a tailwind for gold over the remainder of the year.
If the dollar's current bottoming process follows the typical historical pattern then it will take 3-6 months to complete, after which a strong rebound should begin. This suggests to us that intermediate-term US$ rally will start before the end of next March and that gold will reach an intermediate-term peak during the first two months of the next year by Feb 2010 (since turning points in the gold market usually lead turning points in the currency market) and this could be 1240$ per ounce .
We expect that that real interest rates will remain low; and that financial market volatility will increase. If so then the backdrop will remain 'gold bullish' and a US$-inspired 2-4 month downturn in the gold market during the first half of the next year will be followed by another powerful advance. Our guess is that gold will end 2010 above $1600, but will trade at a $940-1250 at some point during the first half of the year.
Gold's upward trend relative to the base metals should continue during 2009…. Also, we expect that gold will move sharply higher relative to oil. Further to the above discussion, we suspect that gold is within about 10-12 weeks of an important peak. In the mean time, however, significant additional gains are likely amidst some intense volatility as gold gyrates to movements in the currency market namely the yen and the Euro amongst the components of the US$ Index.
Gold commenced a secular bull market relative to all fiat currencies, the CRB Index, bonds and most stock market indices during 1999-2001. This secular trend will peak sometime between 2014 and 2020. Commodities, as represented by the Continuous Commodity Index (CCI), commenced a secular BULL market in 2001 in nominal dollar terms. The first major upward leg in this bull market ended during the first half of 2008, but a long-term peak won't occur until 2014-2020.
US $ index to gold and crude oil --There is a strong inverse correlation between the $ index and both gold and crude oil. However, crude oil's correlation has strengthened while gold's has weakened.
2007 US $/gold -91%
2007 US $/crude oil -96%
2008 US $/gold -76%
2008 US $/crude oil -82%
2009 US $/gold -64%
2009 US $/crude oil -96%
Conclusion -- if the US $ index stays weak, crude oil was soon set for another rally even though there is a seasonal tendency for crude oil to weaken from the last week of Sep until the first week of Dec. One can take argument with some conclusions but the strikingly high correlations in the $ versus crude oil and the $ versus the gold is persisting and a higher crude oil price is pro-inflation, thus gold friendly.
Current Market Situation
Silver versus Gold
As discussed many times over the years, the silver/gold ratio tends to function as an indicator of financial and/or economic confidence in that silver tends to out-perform gold when confidence is rising and under-perform gold when confidence is falling. As a result, we expect that silver will do well relative to gold until the stock market reaches an intermediate-term peak, after which it will become relatively weak. For this reason, SLV (the silver ETF) put options would provide a means of hedging a portfolio heavily laden with gold- and silver-related investments. This is just something to bear in mind.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
