Well it seems that gold has been bobbing up and down like a bouy on water for the past few months making absolutely no headway upwards or downwards to get neither gold bugs nor even gold bears excited. Steady as she goes seems to be the call of the day. Excuse the nautical references, but there is a reason the summer period is known as the ‘Doldrums’ in the precious metals sector. Following is an excerpt from an article by Adam Hamilton entitled ‘Precious Metal Doldrums 4′ issued on July 13th 2012.
“Back in the era of wind-powered tall ships, the doldrums were the name given to the areas of the oceans near the equator where prevailing winds often didn’t exist. These periods of dead calm meant there was no wind for sails, trapping ships for days or even weeks. They drift lethargically and all hope for progress vanishes”
Similarly, with gold, silver, and their miners’ stocks drifting listlessly near correction lows, the sentiment in precious-metals land is even more pessimistic than usual. The ironic thing is even though this phenomenon happens nearly every summer like clockwork, it always crushes sentiment. The great majority of traders aren’t disciplined enough to study the markets and learn their rhythms, so each year the PM summer doldrums discourage them anew.
The reason gold prices slump to a long seasonal ebb in summer is because whereas global investment demand sees big spikes in autumn, winter, and spring for various income-cycle and cultural reasons, there are simply none during the summer.
To demonstrate this, on the graph below, each summer from 2001 to 2011 is shown in yellow. Since this is nothing more than a mess of spaghetti, the red line shows the average and the blue line shows the current summer’s progress. All prices have been indexed at 100 based on the closing price on the last trading day of May.
And lethargically consolidate gold does, as you can see here. The red average of all the yellow individually-indexed summers from 2001 to 2011 is pretty flat. For its entire bull, on average this metal has spent summers drifting from 2% below to 2% above its market-summer starting point at the end of May. A 2% move either way over a 3-month period is hardly noticeable, essentially purely sideways.
And you can clearly see that autumn rally accelerating in September on this chart. After struggling all summer just to maintain its late-May levels, on average gold has powered 5% higher by late September. So if you can hold on through the summer doldrums, ignore the ubiquitous bearish psychology and sit tight, usually you will be richly rewarded in autumn when major seasonal gold-buying spikes return.”