Not time for gold yet (but soon)

by JDH on July 9, 2011

Since we all like to look at the numbers, let’s start with 28,000 and 18,000. Apparently in the month of June the Canadian economy created 28,000 new jobs, while the U.S. economy (with a population about ten times as large as Canada’s), created 18,000. That’s not good, considering expectations were for the creation of between 40,000 and 175,000 new jobs.

Canada now has an unemployment rate of 7.2%, while the U.S. is two points higher at 9.2%. That could be why the Dow started Friday with a 150 point drop, before recovering slightly by the end of the day.

So what does this all mean?

It means the slow motion depression is continuing, but most of us are, apparently, oblivious.

It would appear that Half of US social program recipients believe they “have not used a government social program”. Could that be one of our problems? I’m not here to argue that the government shouldn’t help people in need. (I could make the argument that we would be better off if we would all help each other, without the need for government help, but this is not the forum for that discussion). My point is that people receiving government help don’t even realize it.

That’s scary.

It’s scary because if we don’t even know we are in a bubble, we have no incentive to attempt to change our circumstances, which means our present situation is likely to continue for some time to come.

Unfortunately government intrusion is just the way it is, apparently. I’m sure by now you’ve seen the story about the lady who installed some beautiful raised planter beds in her front yard and planted vegetables, which is apparently illegal, and now could face up to 93 days in jail.

Yup, we’ve gone from the America of self-reliance where we all planted Victory Gardens to help out in the war effort to a nation that puts people in jail for growing tomatoes.


Does this mean the market is about to crash? Probably not, since it’s been held up for the last year or more with QE1 and QE2, although it didn’t make a new high this week, and it’s looking oversold, so who knows.

Of more interest perhaps is what’s going to happen to gold, which has held up remarkably well.

We are now back above the 50 day moving average, which is good, but does it mean it’s time to buy?

Probably not.

I’m not selling any of my holdings, but I’m still waiting for the typical summer drop to increase my holdings. As we all know July is traditionally one of the worst months for gold, so August or September are better buying months.

As the good folks at Casey Research keep reminding us, the average summer correction in gold since 2001 is 8.6%, with the largest correction at almost 22%. To quote Casey:

Gold’s smallest decline in the current bull market has been 2.2%, which, subtracted from this year’s May high, gives us a price of $1,506.74. The average drop over the last ten years is 8.6%, which would give us $1,407.53.

The largest summer drop was 21.7%, which would take us to $1,205.17.

Gold’s low so far this summer is $1,498, a drop of 2.7% – barely more than the smallest summer decline in our current bull market. We’ve come nowhere near the average decline and have two months of summer to go, so I would be inclined to be patient here.

In fact, the data tell us that a $1,407 gold price would be completely normal. In my opinion, that would signal a great buying opportunity. Given all the monetary, fiscal, and economic issues that continue to plague most parts of the globe, I wouldn’t hold my breath that we match the biggest summer decline.

You can read the full article, with charts on the Casey site; here’ the chart:

If gold heads up from here, that would be unusual, representing the smallest summer decline in a decade. I believe it’s more reasonable to assume that we will see further weakness, before we see strength.

So I will continue to sit on the sidelines. I am working on my list of stink bids, and I may start dabbling, but I see no hurry. I already have a position, so if gold and silver head higher, I’m covered. If they drop, I deploy my cash.

That’s my story, until further notice.

Thanks for reading, feel free to comment, and see you next week.

{ 1 comment… read it below or add one }

PaidInGold July 9, 2011 at 5:46 pm

Finally signed up. Been a weekly read for me since May. Great stuff, thank you for sharing your sharp observations and views.

My stink bids so far are into credit cards, EL, and CORN etf.