Gold has spent most of June grinding lower on balance, damaging sentiment and vexing traders. Usual selling leading into the Fed’s latest rate hike contributed, but the summer doldrums are also in play. Gold has typically suffered a seasonal lull this time of year, on waning investment demand as vacations divert attention from markets. But these summer doldrums offer the best seasonal buying opportunities of the year.
This doldrums term is very apt for gold’s summer predicament. It describes a zone in the world’s oceans surrounding the equator. There hot air is constantly rising, creating long-lived low-pressure areas. They are often calm, with little or no prevailing winds. History is full of accounts of sailing ships getting trapped in this zone for days or even weeks, unable to make any headway. The doldrums were murder on ships’ morale.
Crews had no idea when the winds would pick up again, while they continued burning through their precious stores of food and drink. Without moving air, the stifling heat and humidity were suffocating on these ships long before air conditioning. Misery and boredom were extreme, leading to fights breaking out and occasional mutinies. Being trapped in the doldrums was viewed with dread, it was a very trying experience.
Gold investors can somewhat relate. Like clockwork nearly every summer, gold starts drifting listlessly sideways. It often can’t make significant progress no matter what the trends looked like heading into June, July, and August. As the days and weeks slowly pass, sentiment deteriorates markedly. Patience is gradually exhausted, supplanted with deep frustration. Plenty of traders capitulate, abandoning ship.
This post was published at ZEAL LLC on June 23, 2017.