Is gold set for yet another rally in September? Over the past few years gold has always had a spectacular end of year upward rally, always starting around September.
In September of 2003, gold prices went from around $350 to approximately $425. A $75 move, a 20% move. In 2004 gold prices moved from $400 to $450 at the end of September. A $50 move representing a 12.5% increase in gold prices. Last years action will be explained in detail further on in this article. The graph below shows the September rallies of recent years.
Investors getting into position, anticipating a September rally, may cause a small upturn in gold and gold stocks before we enter September. So buy your gold or gold mining stocks before we enter that period.
However, last year gold began its move upwards literally as soon as we entered September and it continued to rise throughout the month. By the end of September gold prices had climbed nearly $40, from about $435 to a high of over $470. A $40 dollar move in a month doesn’t seem that dramatic now, when we have seen gold prices move $10, $20, and $30 even $40 in one day!
However one must bear in mind the gold price of a year ago. Gold was about $450 and so a $40 move is close to a 10% move. A 10% move on today’s prices would be a rise of $64 in a month. $64 in one month is about $16 a week or just over $3 a day. After September we could see gold at over $700. ($640+10%=$704)
September only signifies the beginning. After the September rally there should be a consolidation for about a month. Then gold will probably rise about 20% from the end of November until the end of January. Providing that gold prices stay above $700, a 20% move would force gold to test its all time high of $850 by the end of January.
So now that we have established where gold prices are going, the next point is how to take advantage of them. Of course the most obvious option is to buy gold bullion. By purchasing bullion or a gold ETF you will track gold price exactly as you shall do as well as the gold price. This is the safest way to trade gold. However to maximise the benefit and increase you leverage on the gold price, you would be better off buying gold mining stocks in the HUI.
The HUI tends to outperform gold as is shown in the chart below.
I think that buying gold mining stocks is the best option. You may want to buy a mix of stocks and physical gold for added security though. Try to buy mid sized gold producing companies, as large companies like Barrick and Newmont are usually slow to follow gold. Bema Gold, Agnico-Eagle and Kinross are good stocks to be buying as well as others. Other gold stocks are mentioned in our gold mining category.
If anyone has any other suggestions of gold stocks, or comments on this article, please leave them below.
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