Apr 30 2008 11:25AM

Gold gives more indications that it’s headed for an extended holiday.

Gold and mining stock investors just can’t get a break lately. Unfortunately, they’re not likely to for some time.

The cold, hard fact is, gold seems to have packed its bags for its annual summer vacation. Historically, the metal reaches an interim peak sometime in mid- to late-spring, then suffers through a period of weakness throughout the summer season, as physical markets hit a slack period between holidays and paper markets experience an exodus of traders off to holiday.

That’s what happens in a “typical” year for gold during this bull market. As we know too well, however, this has been anything but a typical year.

This time around, the expected season weakness is coinciding with the end of an exceedingly aggressive rate-cutting campaign by the Federal Reserve...and a corresponding counter-trend rally in the dollar.

Neither the calendar or the dollar rally would be kind to gold by themselves. Taken together, they are a lethal one-two punch combination.

It’s also readily apparent that a growing number of institutional and individual investors, are exiting gold. As my good friend Ron Griess, of thechartstore.com, notes, his data on the major gold ETFs -- streetTRACKS Gold Shares (GLD) and the iShares Comex Gold Trust (IAU) -- reveal a disturbing trend.

At their peaks, GLD (on March 18) and IAU (on March 25) held 21,342,934.37 ounces and 2,158,326.84 ounces of gold, respectively. As of the April 28 close, GLD and IAU held 19,007,305.08 ounces and 2,019,331.60 ounces, respectively.

In total, they’ve liquidated 2,474,625 ounces of gold.

That’s a lot of gold -- but it’s not the amount, but rather the trend, that’s important. Considering both the duration and degree, this is arguably the first major disbursement of gold from these ETFs since their inception. Investors are leaving gold, at least for the time being.

So if gold is heading for its annual holiday, when will it return...and what will it be selling for when it does?

For some indication, I turn to our trustworthy indicator, the 300-day moving average. As regular readers know, we discovered some time ago that this moving average has been the most reliable indicator of gold-price bottoms since the bull market began in April 2001. Over that time period, the gold price has bounced off of this moving average no less than nine times.

So, let’s take a leap of faith and assume that a similar scenario will unfold this time around. Let’s also assume that my prediction of a typical late-July to mid-August bottom will prove correct.

Right now, the 300-day MA for gold is at $769, and rising toward the current price at the rate of about $0.75 a day. Of course, that rate of change will vary depending on gold’s performance, and will progressively decelerate if the gold price stays in a tight range or declines.

For simplicity’s sake, if we project that $0.75 rate of change forward for 90 days, we see that the 300-day MA should be around $835 by the end of July. If all of our assumptions hold true, that would mark gold’s bottom...and the launching point for the next rally.

This is certainly a reasonable scenario -- if not a pleasant one for gold and gold stock investors. Because if this trend holds out, we can expect no joy from resource stocks, except for the occasional junior explorer that hits a big drill hole or makes some other big advancement.

The good news is that mining and exploration shares probably won’t go too much lower. They’ve been beaten to death already, with many selling for their cash in the bank. Plus, most of the sharpies in Toronto and Vancouver will be on holiday, sipping frozen cocktails on sunny beaches far removed from their trading screens.

And considering that many physical markets were put off by gold’s precipitous rise this year, chances are good that they’ll be buying even more heavily when the holiday purchasing season cranks back up in September.

In summary, expect a dull, dreary, sideways-to-down market in the juniors through most of the summer. While some dire economic or geopolitical development may temporarily wake up gold, such an event would have little or no effect on mining equities.

If you’re fully invested, this wouldn’t be the best time to sell. If you have some spare cash, however, it will be a wonderful time to accumulate some bargains.

*****

Brien Lundin is the editor and publisher of Gold Newsletter, a publication that has ranked among the world’s leading precious metals and resource stock advisories since 1971.

To learn more about Gold Newsletter, visit www.goldnewsletter.com.

Mr. Lundin is also the host of the famed New Orleans Investment Conference, the world’s oldest and most respected gold investment event.

To learn more, visit www.neworleansconference.com.