Dear PGM Capital Blog readers,
In this weekend’s blog edition we will elaborate on the seasonal gold and silver rally, that normally starts by the end of June and lasts until the end of November as can be seen from below 30-year chart, with courtesy www.seasonalcharts.com.
So, once the doldrums of June and July are out of the way, price usually rises until January-February, which means that the challenge is to catch the June lows.
With beginning of the precious metal seasonal rally, investors are asking themselves, the following question?
Will this seasonal rally, trigger the end of the cyclical bear market, of the last 2-years, within a secular bull market, or is the precious metal bull market over?
A way to measure if a bull market is over is to compare it to historical bull market movements.
For this purpose we compare in below chart, with the courtesy of investmentscore.com, the 1980’s gold bull market top to the top in gold of September of 2011.
At first glance the 161 percent appreciation from the 1980 to the 2011 high looks quite impressive, but how does it compare to other bull market “Top to Top” measurements?
The below chart compares one bull market to another by measuring the price appreciation – not adjusted for inflation – from a bull market top to that same markets next bull market top.
When we look at the “Top to Top” maximum appreciation in the current precious metals bull market, compared to the other past bull markets we can see that a significant upside potential may still exist.
However, when we adjust above chart for inflation using the official USA government Consumer Price Index, we can see in below chart, that the price of silver and gold in the current bull market has yet to hit new highs.
PGM CAPITAL COMMENTS:
Bank of England 2014 Annual Report:
In its just released 2014 Annual Report, the Bank of England discloses that at the end of 2013 it was holding 5,485 tonnes of gold as a custodian, down 755 tonnes to around the level it was in 2011 and 2012.
Below chart shows the amount of Allocated Gold held by the Bank of England against the average gold price, which shows that the amount of gold has basically followed the gold price, very much like the behaviour of the gold ETFs.
In this June 2014 Quarterly Bulletin, the Bank reports on page 134 that 72 central banks hold gold with them.
It also noted that the “Bank also acts as a bank to certain other financial institutions. One example is central counterparties”.
Included in that the latter group are the six London bullion market clearing banks. As it is unlikely that the Bank runs allocated gold accounts for banks that are not central to the gold market, it would be fair to conclude that the majority of the allocated gold it holds is for central banks.
Given there was nowhere near 755 tonnes of central bank selling in the year ending February 2014 it would therefore be fair to conclude that this gold outflow was from the allocated accounts that bullion banks had with the Bank of England.
This is not surprising considering that the major gold ETFs lost in excess of 600 tonnes over that same period.
June 19, 2014, precious metals biggest rally in nine months:
On last Thursday, June 19th, in response to the FED, cutting its USA growth forecast for this year to 2.1-2.3 percent from 2.9 percent, combined with the elevated core inflation figure of 0.4 percent Gold and Silver have experienced their biggest one day rally in nine months as can be seen from below chart.
This means that inflation is starting to bust out on investors’ worry list, and it is only going to get hotter for the remainder of the year, which means that a financial vehicle will be required to fill this inflation hedging purpose.
Below a famous quote of ex-US Federal Reserve Chairman, done on August 23, 2011.
“Gold, unlike all other commodities, is a currency and the major thrust in the demand for gold is not for jewelry. It’s not for anything other than an escape from what is perceived to be a fiat money system, paper money that seems to be deteriorating.“
All the above indicates, that we may get a very strong seasonal precious metal rally this year, which may be the trigger of the next leg of this secular bull market .
Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don’t move in a straight line and that sharp corrections may happen in the short term.
Yours sincerely,
Eric Panneflek