|ORO Y PLATA INTERNACIONAL S.A.
A good time to buy gold
Enjoy Bullion's Brief Seasonal Strong Period While It Lasts
Don Vialoux, Financial Post
Published: Tuesday, September 04, 2007
Our report on June 11 noted that gold and gold stocks were preparing for
a seasonal entry point. Many changes have occurred in gold and gold
markets since that report was written. Where are these markets going
The period of seasonal strength for gold and gold stocks typically runs for
only about two months -- from the end of July to the end of September.
This seasonal trade for gold has been profitable in eight of the past 10
periods; the average gain per period was 4.6%.
The seasonal trade for the Philadelphia Gold and Silver index also has
been profitable in eight of the past 10 periods; the average gain per period
The seasonal trade for the TSX Gold index also has been profitable in eight
of the past 10 periods; the average gain per period was 12.4%.
An important reason for gains during the July to September period is
additional demand for gold by gold fabricators each summer, when
jewellers stock up on bullion to make gold jewellery for the Christmas
season and the Indian wedding season late in the year.
Economic growth in India, already the largest gold market in the world, has
been spurring demand. In the first quarter, demand for gold in India rose
50% on a year-over-year basis.
The chart shows the optimal seasonal entry and exit points for the
Philadelphia Gold and Silver index during the past six years.
The fundamentals for gold are improving. Cash flow and earnings
prospects for gold producers start to recover in the third quarter on a
year-over-year basis thanks to higher gold prices. The price of gold in the
third quarter last year was about US$600 per ounce.
Selected stocks continue to benefit from rumors of consolidation in the
industry. Last week, rumors circulated that Barrick Gold Corp. would like
to acquire Newmont Mining.
Exploration and development activity by gold producers also will have a
positive impact on the sector in the months to come. Producers are
expanding activity primarily in existing mines where lower ore grades
previously were known, but not proven. Current gold prices have boosted
their economic feasibility.
Gold has been remarkably strong since June 11, when its price was
US$650 per ounce. Gold reached a short-term low late in June at US$640. It
subsequently bounced from its 200-day moving average and gained 6.6%.
It currently is testing resistance at US$688.10. Resistance also exists at
US$698.00. The next technical target on a break above US$698 is US$748.
Gold in euros has formed a 10-month triangular pattern. A break above 504
euros per ounce will complete a bullish technical pattern. The current price
is 495 euros per ounce.
Gold has a high inverse correlation to the U.S. dollar. The U.S. dollar
strengthened from mid-July to mid-August as the sub-prime mortgage
crisis in the U.S. reached a peak. Subsequently, the U.S. dollar weakened
in anticipation of a reduction in the Federal Funds rate on Sept. 18.
Gold has responded to the upside. A break by the U.S. dollar below
support at 80.0 could be the trigger for a breakout by gold above the
US$698 per ounce level.