Don't chase gold as seasonal pattern points to lower prices - Mickey Fulp
Gold prices have pushed to within striking distance of $1,800 an ounce, but the rally comes during the market's seasonally slow period and according to one market analyst, it could be an uphill battle for further gains.
In an interview with Kitco News, Mickey Fulp, creator of the Mercenary Geologist Newsletter, said that traditionally, gold prices have a strong start to the year, prices are flat through spring and usually hit a low in late summer, early fall.
"We expect during the period from June to the end of October for gold to be flat or lose value, till about mid-August," he said. "Usually, the seasonal low for gold during the year is sometime between the 1st of July to mid-August."
As to how low prices could go, Fulp said that there appears to be strong support at $1,700 an ounce. He added that at each rally, gold has been able to build a healthy base of support and at this point, Fulp a correction at current levels would be healthy for the market.
"Gold has behaved quite well. The way we like to see markets behave is basically two steps forward and one step back."
Although seasonal patterns aren't bullish for gold in the short-term, Fulp noted that 2020 has been anything but normal. Unprecedented stimulus measures from central banks and governments to support the global economy devastated by the COVID-19 pandemic could be enough for gold to buck traditional patterns, he said.
However, Fulp also said that Investors should see any pullback as a buying opportunity.
With gold and silver prices expected to continue to move higher through the rest of the year, Fulp said that investors will look back at this time as an once-in-a-lifetime opportunity to own junior explorers and mining companies and cheap valuations.
Looking at the TSX Venture Index, which is heavily weighted with junior miners, he said that the market has rallied 62% from the March lows.
"So you tell me the juniors aren't coming back or they haven't come back. I'm probably going to call foul there. They are coming back. I'm watching my portfolio increase on a week by week basis," he said.
As to what companies Fulp is watching, he said that he is looking at companies that haven't followed the two-month rally and that have solid management teams with projects mostly in North American jurisdictions.
He added that companies also need to have cash in the bank or be able to raise money as the world continues to deal with the global economy weakened by the coronavirus.