These Signs Point to a Bullish Season for This Precious Metal
By John Whitefoot for Daily Gains Letter |
Gold is making a comeback after having lost 21.5% of its value since the beginning of the year. Since the start of July, the precious metal has climbed almost 10%—trading near $1,275 per ounce.
The price of the yellow precious metal began its turnaround in late June after Federal Reserve chairman Ben Bernanke said the central bank would consider tapering its monthly $85.0-billion purchase of Treasury and mortgage-backed security bonds by the end of the year. On top of that, the Federal Reserve said it might even completely end its quantitative easing policies in 2014.
On Wednesday, July 17, gold prices edged higher after Bernanke calmed the storm he created, telling investors that the quantitative easing policies could, depending on the economy, stay in place for longer than expected.
Even though the economy has been improving at a moderate rate, Bernanke said, those improvements have been overshadowed by the national unemployment rate, which stands at a stubbornly high 7.6% (along with a 14.3% underemployment rate).
For investors, that means the era of easy money is going to continue into the near future—and money will continue to pour into the markets. On Thursday, the day after the Fed spoke, the Dow Jones Industrial Average and the S&P 500 rose to all-time intraday highs.
Not to be left out of the party, gold climbed more than one percent, hitting a one-month high of $1,299 per ounce.
Even after the Federal Reserve–inspired euphoria on Wall Street fades, there might be additional reasons for investors to keep their eyes on gold equities and related exchange-traded funds (ETFs).
According to Thackray’s 2013 Investor’s Guide: How to Profit from Seasonal Market Trends, gold experiences a period of seasonal strength from July 27 to September 25. The period has been profitable in 12 of the past 16 periods, with an average return per period of 8.1%.
The beginning of this period corresponds with second-quarter earnings season, which, thanks to lower gold prices and higher energy costs, means most producers of the yellow metal will not be reporting stellar results. But the markets have, for the most part, already anticipated most of the bad news, and it has been reflected in the current price of the precious metal.
For precious metal investors, this could be an opportune time to take a closer look at miners and ETFs.
Global X Pure Gold Miners ETF (NYSEArca/GGGG) seeks to provide investment results that correspond generally to the price and yield performance of the Solactive Global Pure Gold Miners Index, which is made up of the largest and most liquid gold mining companies in the world. As of February 2012, over 90% of the revenues from the companies in this index were derived from gold mining.
While the index is down almost 50% year-to-date, an expected increase in prices for the precious metal will have a positive impact on gold miners. As prices go up, miners will benefit with higher profit margins.
The world’s number one gold producer, Barrick Gold Corporation (NYSE/ABX, TSX/ABX) has lost over 55% of its value since the beginning of January, but it’s up more than 12% over the last few weeks. Barrick’s short-term results could improve even more as miners become more focused on productivity and higher-grade areas.
The sometimes unpredictable ebb and flow of precious metals like gold is not suited for every investor. But with the Federal Reserve eager to continue printing money and considering seasonal strength, the next couple months could provide an opportunity for growth for those who do follow the yellow precious metal.
Tags: Dow Jones Industrial Average, earnings, earnings season, ETFs, Federal Reserve, gold, gold prices, precious metal, quantitative policies, S&P 500, unemployment rate
