While the dollar dropped to a two-and-half month low against the euro yesterday, gold closed at a fresh two-and-a-half month high at $945.30 per ounce. Near-record oil prices, geopolitical tensions in the Middle East, and the continued weakness in the dollar have fueled gold’s latest rally.
Gold’s strength has caught me by surprise recently, as I expected it to remain in a trading range and retest the $850 level. But as strong as it looks short-term, now is not yet the time to get aggressively long. Reason: July and August are seasonally WEAK months for gold and gold shares.
Once I get the signals, my next target for gold: $1,250 an ounce.
Long-term, the fundamentals that have driven gold higher are firmly in place and keep telling me that prices must climb to an equilibrium level of $2,200 or better. Soaring demand, declining supply, surging oil prices, the declining dollar, profligate money printing, and hyperinflation all point to much higher gold prices.
Posted Thursday, July 3, 2008 by
Larry Edelson
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Posted by: JT on Thursday, July 3, 2008
I was wondering about that - I remember hearing that gold tends to be weak during the summer time. I added a little to my gold holdings the other day, but was thinking should I be doing this now? Out of curiosity why does gold tend to be weak this time of year? Thanks
Posted by: Jan Schneeberger on Saturday, July 5, 2008
You are mentioning the falling US$ and geopolitical tensions in the Middle East as the kicks for higher precious metals. There are other factors on work. It’s the negative real interest rate, stupid ! (I have translated it for you): On the German website http://www.goldseiten.de/,. there was yesterday an interesting aricle about gold written by Uwe Bergold, the German "commodity pope". Go here: http://www.goldseiten.de/content/diverses/artikel.php?storyid=7661 Bottom Line: Negative Real interest rates are the ignition of the price explosion of precious metals: Chart 1: T-Bill (3 Month) - CPI: On this chart you can see, that in the 70ies there were 3 phases of negative real interest rates. Only in the second (1973-1974) and third (1979-1980) one did the real interest rate plunge under -3% (ignition points), which resulted in a explosion in Gold and Goldmines. In 1974 the price of Gold doubled within 4 months and in 1979 it doubled within 4 weeks!! The Gold mining index BGMI surged from January 1973 till October 1974 more than 400% and between 1976 and 1980 more than 500%. As of today the data is quite similar to 1973 with real interest rates almost MINUS 3%. If we would use the same CPI measures as back in the 70ies, the real negative interest rate would be around -7%! Thats the same figure like in 1979, when the price of Gold doubled within 4 weeks!!! Chart 3: CPI - PPI: This chart shows the inflation "in the pipeline". Since PPI increases leads to CPI increases roughly 6 monts later. This chart shows a similar picture like 1973, the start of the first big gold mining price explosion.
Posted by: Larry on Monday, July 7, 2008
No kidding! And negative real interest rates are largely created by the Fed pumping out fiat money like crazy, printing money at will, out of thin air.
Posted by: Larry on Monday, July 7, 2008
Seasonal weakness in gold is not a rigid reason not to buy. But to answer your question as to why the summer is typically weaker for gold demand, it's due largely to the lack of holidays and celebrations in Asia during the summer months. The big gold demand season in Asia is typically in the fall, which is a big season for holidays in India and China, especially Indian weddings.