Autumn seasonal uplift for gold prices a clear trend

This article is hardly going to thrill gold bugs with new information but the old timers are going to have to get used to new gold investors wanting to learn the ropes. The idea that gold always rises in the autumn is not new and pretty much established in the data of the past decade.

The charts below from usagold.com show very clearly what has been going on. The summer doldrums are a fact of life for gold traders and partly due to Indian religious festivals and their seasonal buying. Over the decades this trading pattern has become known and is probably now almost self-sustaining:

Is there any reason why 2010 might be the exception to this rule like 2008? Actually there is good reason to expect the price rise to come a little later this autumn.

For the stock market is now likely entering a correction phase as the slowdown in the US recovery is fully digested by equity prices that rallied from March 2009 to April this year. This down phase could last until the end of October and would tend to take the gold price down with it, particularly if the equity correction is quite deep.

That happens because stock market investors who hold gold may have to sell it to meet margin calls, and that is what kept gold prices weak in late 2008. However, this would only create a great buying opportunity for the yellow metal.

Golden days ahead

For the gold price has plenty of upside. It is not so far above its 1980 high of $850 an ounce, and has a massive way to go if gold is ever going to reflect price inflation from 1980 to 2010. Gold has shifted gradually from $250 to $1,250 an ounce over the past decade but shows no sign of a price spike – indeed, it is arguably the only major asset price chart in this position.

Moreover, the economic drivers that sent gold up eight-fold from 1976 to 1980 are the same that are in prospect for the next few years: viz monetary inflation to amortize debt and grease the wheels of economic recovery. One day that genie will have to be put back in the bag but not anytime soon.

Pimco’s Bill Gross is talking on Bloomberg of a two to three year freeze in interest rates at near zero rates in the US, and the Fed is going to keep the money presses turning to get the economy moving again.

Inflation will turn low interest rates negative in real terms and drive investors into gold as one of the few proven safe havens to safeguard value in a stagflationary environment. Cash, bonds, stocks and real estate were all losers in the late 70s. Gold and oil won hands down!