I’ve written before about the seasonality of the precious metals markets and the wisdom that can be gleaned from knowing and understanding the historical performance of alternative investments like gold and silver. While past performance is not indicative of future results, history can provide valuable insight for today’s market conditions.
This week gold finished with a flourish. Once again the Fed did not raise interest rates suggesting that perhaps things are not as positive as some members of the media would like us to believe. Still, the stock market is rising and investors have made a rush back to traditional paper assets. In the midst of all this paper positivity, the metals have trended down from highs set in January and have been trading in a channel following a small rally in May.
Traditionally the summer is a boring season for gold. Some call it June gloom or the summer doldrums, but I call it a great opportunity. Historically speaking from May to August gold stays mostly range-bound bumping up against resistance and bouncing off support. Over the past ten years, with the exception of 2008 and 2011, the summer months have been relatively uneventful. There is little urgency when the market is sideways, and that lack of urgency allows corporate fat cats who use the word “summer” as a verb to enjoy their time in the Hamptons (or wherever) with little concern. But while they rest, I think that smart investors will be active this summer.
I believe that now is a great time to add metals to your portfolio. The relatively low volatility and steady pace of summer allows investors to buy at prices that they could only dream of months before. Or, if you bought at a price higher than what we are seeing today, you can employ a dollar cost averaging strategy. If you are not familiar, Investopedia describes dollar cost averaging as, “a wealth-building strategy that involves investing a fixed amount of money at regular intervals over a long period.” Investopedia goes on to say that, “This type of systematic investment program is familiar to many investors, as they practice it with their 401(k) and 403(b) retirement plans.”
Put simply, if you bought 100 ounces of gold at $1300 an ounce in January, and today you buy 100 ounces of gold at $1200, you now have 200 ounces at an average price of $1250 an ounce. This method of averaging puts you in a much better position to take advantage of the rallies expected later this year. So if you’re like me, and you are not convinced that the worst is over, or that the economy has fully recovered, I invite you to take advantage of the low prices that we’re seeing right now and take a position in contra-dollar or alternative investments like gold, silver, or platinum.