Sell in May? Hold on...
Is this the year gold breaks from its seasonal pattern and enjoys a summertime rally? Ed Bugos of Gold & Options Trader checks in from Vancouver:
Gold could be ready to end the
summer doldrums even before summer begins.
The most relevant area of resistance
in the way of this outlook is the 30-point range between $890 and $920. If we
don’t get through there before summer, then I am probably wrong.
What I don’t
want to see is a drift towards the high end of that range through June, then
whack, as summer sets in. In that case, the market could fall back to the
mid-high $700’s. But the trade looks better than that here. I think we’ve had
our seasonal low. And if your eye is on the right ball, you can’t help but see
that central banks are going to keep the pedal to the metal for as long as
bond-holders don’t start punishing them for it.
That’s the most important fact
driving gold and the commodity bull – the contemporary ideas driving present and
future monetary/banking policies around the world. Most of the world thinks
that China’s high CPI inflation rate is
tied to its fast growing economy, for instance, but it is not. Growth tends to
produce downward price pressures, especially at the final goods stages. The
Chinese economy is starting to see the effects of years of rapid money creation,
but the point is that everyone loves to inflate, and no one blames inflation for
anything. That’s the greatest story never told… or more accurately, never
So what if oil falls back 30%. It will probably fall back to a level
that would have shocked the Greenspan Fed back in 2002 when it confidently told
us how these things were going to be transitory – at $20-30/bbl! The commodity
bull market is not about irrational exuberance, or massive growth in
China. It’s about money. And the
precious metals own that story.
So far the markets are comfortable buying other
commodities as a way to hedge both inflation and growth, and gold has basically
tagged along. But when the growth turns to bust, there’s just inflation. It’s
gold’s turn to shine… to take back its glory as the most preferable commodity…
to become money again. Just writing that makes me realize how early in the game
it still is. Who today would believe gold will become money again? Yet, at the
top of the market everyone will.
For more from Ed, including five junior mining plays he thinks are on the verge of something big, check out his special report.