This is usually a good month to buy gold but it's a tough call this year
Thanks to Niru Devani for this article on Gold.
Gold broke down below a key technical support level of 1236 which was the low in December 2016. The trigger was the yield on the three month Treasury Bill which broke through 2%, a level not seen since the summer of 2008. This followed the Fed chairman's testimony on Capitol Hill to reiterate that the Fed remains on track to continue to raising interest rates. In an environment of a rallying U.S. dollar and still positive real interest rates, gold does not prosper.
I thought the article below, by Dominic Frisby at Moneyweek.com, would be of interest to other subscribers as it offers a contrarian point of view.
Summertime, and the gold investing ain’t easy
Wisdom has it that the summer months – June, July and August – are the best time of year to buy precious metals (and their related stocks) with a view to offloading the following winter or in early spring.
It’s one of those trades that seems to work better in the rear-view mirror than it does in real time, however.
If you look back at a chart of gold you can usually find a low sometime in July, and then find a point between the following October and April, where the gold price was 10% or 20% higher, and then declare that the trade worked.
Buying the low and selling the high in real time is a rather trickier proposition. That said, it is do-able.
However, gold itself is currently in freefall. In April, gold was re-testing five-year highs at $1,360-$1,370 per ounce. There was a nice uptrend in place. Each low was higher than the last. Talk of inflation was doing the rounds again, and the solution was shiny, yellow-y metal.
Now it is some $130 lower at $1,227. Each low is lower than the last. Every attempt at a rally is anaemic. The trend is strong and the trend is down. To be buying now and attempting to play the “summer trade” is to try and catch a falling knife. Sometimes it works and the audience applauds – however the risk of self-injury is high.
Tuesday was particularly brutal. Gold’s enemy number one, the chairman of the Federal Reserve Bank, Jerome Powell, said that the economy was growing at a “solid pace”, that the unemployment rate was expected to fall further, that the recent pickup in inflation, toward the Fed’s 2% target, was “encouraging”.
The Fed has already raised interest rates twice this year and Powell pencilled in two more quarter-point moves. Stocks duly rallied (a bit), the dollar rallied – and gold took a $20 wallop in the face, sending it to two-year lows.
