Wednesday, August 11, 2010

Gold Seasonals

Is Gold going to follow the seasonal pattern this year? If Gold trends with the historical averages, we may see new highs heading into the fall as the current price of ~$1200 is about ~$60 away from last years high in late November.

Why does Gold tend to appreciate in September and into the fall? (With an exception for October) There are a few reasons which may provide the answer. It has to do with gift giving and Gold has been a significant and coveted precious metal over hundreds of years.

1) Muslim holy month of Ramadan starts in mid August and heads into September with gift giving.

2) Post wedding season in India followed by Diwali, India’s largest festival.
In India, weddings are a major. Most marriages are arranged, and couples are usually married during autumn festivals like Diwali. It is believed that being married in festival season provides good luck, longevity, happiness, and success for a marriage. The families of Indian brides give them wedding gold in 22-karat jewelry. With Gold’s bright rich yellow color, it’s beautiful on the bride, but gold’s intrinsic value helps secure her financial future and her financial independence within her husband’s family.
India is the world’s largest consumer of gold. Most of it is in the form of jewelry, but Indians don’t separate gold jewelry and gold investment like we do in the West. They are one and the same. Brides’ dowries may not sound like much, but collectively they are the biggest seasonal driver of gold investment demand on the planet. Around 40% of India’s entire annual gold demand occurs during the short autumn wedding season.

3) Christmas is a world wide celebration

Jewelry is often given for Christmas and Gold is a popular item as it retains its value and has appreciated nicely over the last ten years. Diamonds are typically for wedding rings and Silver does not have the elegance and worth for wearing. The Christmas holiday has also been taken up by several countries, even though they are not religiously Christian.

4) Chinas National day celebration in October and the New Year in 2011.

In addition to the National day and New Years, the Chinese government has also suggested that people purchase Gold for their savings. You can now purchase Gold at most banks in China.

I would guess that professional commodity traders will be keeping a close eye on the Gold and Silver markets in the coming weeks to spot a possible bull trend based on the seasonals. If Gold/Silver does make a run for the ~$1300+ area you can bet your last silver dollar that major buyers will be placing their bids in to ensure they get a piece of the market. (Which may send the prices higher, and the shorts covering).  If it is anything like last year, they will also make sure they lock in their profits before the end of the year so they can show healthy returns on their balance sheets.

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