In May 2006 we saw the “sell in May and go away” strategy in action and wondered if we are to get the same again. The truth is that we do not know but we do have a couple of observations that we thought were worthy of your attention.

If we take a look at the chart for the period concerned we can see a number of differences between May 2006 and May 2007.

We will look at May 2006 first.

The price of gold has screamed ahead of its moving averages leaving the 50 DMA and the 200 DMA back in the rear view mirror. In fact the difference between the gold price at $725 and the 200 DMA at 510 is approximately 215 points. This is a huge gap due for a correction if ever I saw one.

Also note where the technical indicators are: The RSI is above 70, the MACD is close to 30 and the Stockastics are above 80, all telling us that this is an overbought situation.

Now we will look at May 2007.

The price of gold has made steady progress over time taking the moving averages along with it for the ride. The price of gold is at $689 and the 200 DMA sits at around 630 so the difference is only 59 and not a massive 225. This tells us that the price of gold has not run too far ahead itself as it did in May 2006.

Now note where the technical indicators are: The RSI is around 50, the MACD is close to zero and the stockastics are heading north towards the 50 level. In summary they are more or less in the middle of their ranges, which is dramatically different from the overbought situation of May 2006.

These are just observations that we can put into the pot while trying to decide which course of action we should take. However it suggests to us that if there is a sell off this May then it could be a mild one lasting for a short time only.