Thursday, March 19, 2009

Gold Shock and Awe (Chart)

April Gold 2009
April Gold futures closed yesterday at 889.10 with a low of 882.70. Today it is trading in the 950 area. Clearly a major reaction to yesterday's news from the Federal Reserve Board. An impressive rally so far. Most gold stocks are up 5 percent or more today.

If you have been following along on this blog, you know I believe that gold is going higher--a lot higher. As a note of caution right now, gold has a very strong seasonal pattern, and we are entering the weakest part of the year. Gold has a tendency to peak in the February-March period and then bottom in the August-October period. I point this out so you know there is some downside risk at this time of year. If you own gold you need to be patient at this time of year.
If you look at the chart above you will notice that gold bottomed on October 24, 2008 at 734.60. This was down from over a 1000 in March of 2008.
The strong seasonal patterns in gold are due to buying patterns. Buying for jewelery, and buying out of China and India tend to be strong late in the year (I will explain this in a separate article soon).

There are three types of buying for gold: jewelry, industrial buying, and investment buying. In the last year, the jewelry component was down about 6 percent. Demand from investors rose more than 182 percent. In the fourth quarter when gold was rallying strongly demand was greater than supply (up 26 percent over the same quarter in 2007). I expect to see good buying out of China in the years ahead. I suspect the Central Bank of China will continue to add gold as a reserve. I also expect strong buying from investors. If the world economy picks up you can expect jewelry buying to increase. Inflation fears are likely to grow as the Federal Reserves continues to grow the monetary base through a never ending series of anti-deflation measures.

The above chart shows that gold continues to make higher highs and higher lows. The exception being yesterday when the market spiked down and right back up late yesterday and today.

On March 5, 2009, I wrote about Yamana Gold (AUY, $8.50). It is a good idea to look at Yamana. Other good ideas are: GLD (the ETF), GG (Goldcorp), FCX (Freeport-McMoRan Copper & Gold), ABX (Barrick Gold) and a long list of other gold stocks.

I will be writing more about gold, the fundamentals, supply and demand, seasonal trends, and gold stocks in the days ahead.
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Bob DeMarco is a citizen journalist and twenty year Wall Street veteran. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. Content from All American Investor has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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