Savvy traders should bet on a golden autumn
THE old City adage of selling in May and not returning until St Leger’s Day in early September typically refers to the equity markets, which suffer from low volumes and choppy trading during the summer months.
But the saying is equally applicable to the gold market, which also demonstrates a clear seasonality and experiences a summer dip too.
Historically, the price of the precious metal tends to peak in the spring as a result of the Indian wedding season, drift or dip slightly over the summer, before setting a new high for the year in the autumn ahead of Diwali and Chinese New Year. This specific pattern has occurred in around 50 per cent of years since 1968.
Gold did fall from its June highs of $1,257.20 to just below $1,160 but it has been rising steadily since late July. However, it has encountered resistance at the $1,225-27 level. Does this mean that gold won’t repeat the pattern this year and that spread betters have missed the boat or will September once again be the catalyst for a fresh upward move?
If you are a spread betting gold bug, you’ll be pleased to hear that analysts are still fairly bullish about the prospects for gold, despite the 6.5 per cent gain since the July low.
For a start, the markets are still demonstrating plenty of risk aversion, which “will continue to fuel capital flows into gold while the uptrend that has been in place since the lows of October 2008 stays in place,” says CMC Markets’ market analyst Michael Hewson. This sloping uptrend support level (looking at a weekly chart) is drawn from the lows that were hit in October 2008 and has remained fully intact ever since.
Hewson adds: “While the rising two-year support – currently between $1,160 and $1,180 – remains intact, further gold gains remain likely and a move to $1,300 seems only a matter of time.”
Goldman Sachs also seems to agree. Only last week, its analysts David Greely and Damien Courvalin wrote in a research note that “the recent sell-off has left speculative long positions in gold oversold relative to US real interest rates, which we believe has set the stage for a rally to our six-month gold price target of $1,300”.
Adrian Ash, head of research at BullionVault.com, which gives private individuals access to the professional gold bullion market, says he would not be surprised to see gold hit £1,000 per troy ounce in the New Year, depending on the exchange rate.
In the near-term, CMC Markets’ Michael Hewson says that spread betters should be watching out for a break above the channel resistance at $1,240, which could well trigger a test towards the highs. A move to $1,300 then looks more likely.
FRESH HIGHS
However, spread betters taking a punt on gold climbing to fresh autumn highs should be conscious that if central banks start raising interest rates and shake off their current paralysis, then the price of gold will suffer.
Technically, a break below the rising support line could trigger a swift sell-off towards the 2008 highs of $1,030, says Hewson. It would therefore be worth spread betters placing a stop just below this support level.
This precious metal looks set to keep its lustre throughout the autumn; perfect for some golden profits for spread betters.