Late September, the turning point between summer and fall, could also bring with it a dip in gold's recent rally.
According to Merrill Lynch & Co. Inc., bullion prices over the last fifteen years have followed a “very strong” seasonal pattern from early summer to early fall: strengthening through the late summer period as fabricators replenish inventories ahead of the autumn season.
“Since seven of the past eight rallies have peaked (and ended) in late September/early October, we surmise that the seasonal rally may have little life left to it,” Merrill analyst Michael Jalonen wrote in a Monday report.
Gold prices — and gold stocks — started to rally this summer. Since July 19, the price of gold and the S&P/TSX gold index have risen 12.2 per cent and 17.4 per cent, respectively, the report said, while the Philadelphia Gold & Silver index has shot up 23.5 per cent.
Gold's rallies have lasted 39 days on average, according to Merrill. The longest rally was in 2004 — 72 days, while the shortest lasted 17 days in 1989.
Bullion prices soared to a 17-year-and-a-half year high of $479 (U.S.) on Thursday, Sept. 22, before falling and retracing most of last week's gains as a drop in crude prices lowered gold's appeal as a hedge against inflation.
The TSX gold index fell 3.3 per cent last week, while the Philadelphia Gold & Silver index lost 1 per cent.
Futures for December delivery rose $2.30 to $469.50 an ounce on the New York Mercantile Exchange Monday, rebounding from an intraday low of $462.30.
“Bullion could encounter weakness in the near term due to the expected resumption of sales by the European Central Bank after September 27,” Merrill said. After the regular seasonal rally, gold has traditionally fallen by 6.3 per cent over the course of 33 business days.
The Merrill's analysis suggests that North American gold equities are “on the pricey side.” Average price to net asset value multiples among gold companies are trading above the mid-point of their twelve-year average, the report said.
Merrill, however, remains bullish on the gold sector on a long-term basis. Last week, the brokerage raised its 2006 gold price target by 3.5 per cent to $440 an ounce and its 2007 target by 13.3 per cent to $425 an ounce. It also raised its long-term forecast from $375 an ounce to $400 an ounce.
For the balance of 2005, Merrill expects gold will range from $440 to $480 an ounce, falling to the low end of that range late in October and rising to the high end by year's end.
“We remain bullish on gold over the medium to long term and believe that the arguments for gold outweigh the arguments against,” the report said.
© The Globe and Mail
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