by Matthew Carr, Investment U Research
Friday, May 18, 2012: Issue #1776
In 99.9% of instances, I take a bottom-up approach to investing.
I ignore the macro-economic picture for the most part; I ignore the talking heads on television; and I ignore the crests and troughs of sentiment.
I focus on companies. I focus on their opportunities. I focus on value and growth. And then I prey on the “Chicken Littles,” the panic sellers, the investors who freak out on every market dip. I snag great companies at discounts and watch the returns roll in.
This is why my favorite time of the year is August, September and October – the months of broad market catastrophes.
Now, that’s for the vast, vast majority market sectors. One of the few exceptions though, is gold.
Gold is the exact opposite. It’s a top-down investment, with its value tethered to the macro-economic picture. You add to your position on dips – like we have now – and profit on the run-ups.
In August, gold bounced off $1,900 per ounce. Today, we’re hovering around $1,590. That’s nearly a 16% decline… A 16% discount.
A lot of people think the glitter-filled days of new gold highs are behind us. I’ve heard calls for $1,100 gold and even a claim gold will tumble all the way down to $700… But I’d ignore those extremes. I will tell you, we may see gold dip lower – that isn’t out the question.
But a lot of those talking heads forget that gold is also seasonal, though this seasonality isn’t as profound as other, softer commodities.
So the reality is, we’re in a seasonal bearish period inside what I believe is a larger bull run. We’re in stasis – a holding pattern. A breather. We saw this same stall from April to July last year when gold mainly hovered around $1,500 and dipped in the $1,400s a few times.
In fact, over the last 15 years, gold prices weaken from mid-February into the summer, then again in October. And our biggest gains come in the stretch from November to early February – the annual stampede run fed by ramped up Asian buying.
You’ll notice that volatility in equities remains ever-present, particularly as we’re in the midst of earnings season. But the volatility in gold prices has calmed down. Gone are the days of $150 per ounce moves. Now, a big move is between $30 and $40. And most days the moves have been much smaller than that.
November and December are two of the strongest months for gold. But this year we also have the U.S. presidential election in November. And the macro-economic picture continues to remain tenuous. We’re still concerned about Europe. Greece is small potatoes compared to what’s unraveling in Spain. And Spain is a drop in the bucket compared to Italy.
If the dominoes begin falling, the great euro experiment’s end will move from a fun over-dinner debate to a very real possibility.
I expect it’ll be six months before the next big leg up in gold’s price. And $2,000 gold is far more eminent than triple-digit gold. Pick your spots over the next six months, and look for gold to move higher in the last half of the year. Of course, at the very least, you should have Investment U’s recommended 5% allocation in precious metals like gold.
Matthew Carr2012 Gold Price Forecast: Where We Are and Where We're Going,