Pot-Pourri Jan 04 2011

BarroMetrics Views: Pot-Pourri Jan 04 2011

6yardsitko raised the question of seasonal tendencies for Gold in September & October.

Seasonal charts tend to vary somewhat in their detail. I use Moore Research Centre Inc because I have found their charts to be the most reliable.

Figure 1 shows the MRCI Seasonal Patterns for Gold for 5, 15 and 30 years. You’ll note that we see lows in Sept and Oct.

Squice wants me to comment on the Gold/S&P inverse correlation.

That’s a difficult question to answer because it is so general. But here’s my best try.

Generally, Gold, Interest Rate Yields and the S&P all rise in the strong section of the business cycle; in a deflationary environment, they all fall; in a stagflation situation, Gold tends to remain in an uptrend while the S&P and Interest Yields tend to move sideways.  By sideways I mean you will see their charts reflecting roughly equal highs and lows.

I see the current situation akin the 1966 to 1982 conditions i.e. a sideways market for the S&P and an uptrend for Gold.

Figures 2 and 3 show the S&P and Gold charts for the period. Note that the Gold chart topped out 2 years before the start of the S&P rally.

I should not be taken to say that the S&P/Gold relationship is a fixed one – there will be times when the correlation is stronger than at other times. But as long as we are aware of the stage of the business cycle we are in, the correlation serves a useful function.

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FIGURE 1 Gold Seasonal Patterns

Charts through the Courtesy of MCRI

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FIGURE 2 S&P 1966 to 1982

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FIGURE 3 Gold 1970 to 1980

Charts through the courtesy of The Chart Store

4 thoughts on “Pot-Pourri Jan 04 2011”

  1. From figure 2, I understand that the real financial crisis is right ahead of us! Now I dont know anything about cycles but if your predictions stands true then we are in for one hell of a ride!

    Thanks,

    Ahmed

  2. Ray,

    From my perspective, I see a major difference in the seasonal pattern for gold since the 2002 time frame, particularly versus the 30 year seasonal pattern.

    If gold takes out what I have called “the Obama Move” trend here, then we might get your “negative development” sell signal, i.e., the 12M sell signal which would take it down to the $1000 area.

    The $US dollar would really need to move up, as you have suggested it might do, to see that type of decline IMO.

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