Gold’s Bad Luck With the Number 13
Gold has been on a rampage since the early 2000’s with yearly gains for 12 years in a row. Nothing lasts forever and the number 13 is starting to look very unlucky for gold. Barring a major upset in the world financial system, it looks increasing likely that gold will decline in the 13th year of its long rally in the year 2013.
Bloomberg’s Julie Hyman and Michael Purves, chief global strategist at Weeden & Co. take an interesting look at the factors impacting gold prices on Bloomberg Television.
Mr. Purves notes that the “flash crash” of gold in April correlated to a stronger dollar in the first half. The strong dollar in the first half of the year has reversed and we have seen a weaker dollar so far in the second half of the year with a rebound and stabilization in gold prices.
Further evidence of healthy consolidation in gold prices can be seen by gold’s refusal to break to new lows as was widely predicted by consensus analysts. Mr. Purves expects that the current consolidation in gold prices is building a base for a future advance. As to the impact of a more restrained Federal Reserve monetary policy, Mr. Purves expects any tapering to be “measured and conditional.”
A strategy recommended by Mr. Purves to take advantage of expected continued volatility in gold prices is the option strategy of selling a November 127 put on the GLD and buying the 133 call.
The consensus opinion for gold remains one of bearishness or guarded optimism – and everyone knows that when the crowd is leaning in one direction, don’t be surprised if the consensus turns out to be wrong.