Don't Sweat Gold's Seasonal Weakness--Just Wait Until September

It is surprising how a few margin hikes by the boys at the CME Group can derail the whole commodity sector. First, the silver longs were squeezed out of their positions, which in turn caused major selling in other commodities like gold and oil, as commodity funds sold everything and anything to raise cash to meet margin  calls. As leveraged long positions are liquidated it has a knock on effect, forcing more players out of the market and creating a cascading downward break in the whole commodity complex.

While this may be just a correction, the coordinated action by the CME and other exchanges, along with media coverage is suspicious. The anti-gold/pro-dollar establishment pundits have come out of the woodwork declaring that the inflation threat was gone, kaput, and nothing more than "transitory," just as the great Chairman Bernanke proclaimed. This is of course, ludicrous considering that these same so-called experts never officially acknowledged the inflation threat in the first place. According to these fools, the "non-existant inflation threat" no longer exists. Whew, glad they cleared that up! This proclamation from the Ministry of Truth should provide some comfort when Americans bend over and pay $4.30 a gallon for gas.

However, the important thing to remember is that gold bull market remains intact. In fact, gold is simply following its typical seasonal pattern. You can see from the chart below, that gold always  has a tough time from May to September, before rebounding strongly towards the end of the year. So far this year we have been right on track. As we reported earlier (Beware the False Breakout in Stocks) Marc Faber had turned somewhat cautious regarding the precious metals as they were overbought and facing the upcoming weak seasonal pattern.

The Bottom Line: If gold continues to follow its usual pattern, it would lead to gold entering a slightly downward consolidation pattern between $1350-1550 for the next few months, depending on the action of the general market. Then in September we should start to see gold creep higher to new all-time highs above $1570.

Related Articles:
As Inflation Soars, Take the Gold Pill
The Only Catalyst That Could Derail The Gold Bull Market
The Federal Reserve's Plan To Destroy the Dollar

Black Swan Insights



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