T'is The Season? Maybe Not.
If history is bound to repeat itself, gold and
gold stocks are heading into a summertime seasonal slump.
Yet with gold hitting a new 25-year high just this week, some
wonder whether this summer, gold investors will be singing
the summertime blues . . . or soaking up sizzling returns.
Historically, the summer season hasn’t
been kind to gold. “Post the winter seasonal strength,
gold prices usually sag into the early summer (generally troughing
in July) with an average decline of 7.0% over the past ten
years,” writes Michael Jalonen, analyst and author of
Merrill Lynch’s North American Precious Metals Weekly.
Why this seasonal pattern? The jewelry market,
which accounts for about three quarters of the gold sold each
year, has a lot to do with it, says Doug Casey, author of
Doug Casey’s International Speculator.
“What we see for the fourth quarter of
each year is the impact of the gift-giving tradition associated
with the druid Winter Solstice, now known as Christmas,”
Casey wrote this week. “Layered on top of that is the
Indian festival season of Diwali, which kicks off in November
and continues through the first leg of the traditional wedding
season in December.”
Yet Casey also makes two important points. First,
that the historical data “is sparse, in that gold has
traded freely only since Nixon closed the gold window on August
15, 1971.” Moreover, says Casey, “Jewelry buying
is nice and certainly contributes to gold's seasonality. But
remember, what's really going to supercharge the market is
buying by central banks and the public, as they increasingly
realize that the dollars they're sitting on are melting.”
And it’s not just fear of a shrinking
dollar. Global unrest is also driving interest in gold. According
to a recent MarketWatch report, gold “joined a broad
commodities rally after the New Yorker magazine reported that
the United States is stepping up preparations for a possible
air attack on Iranian nuclear facilities, which may involve
the use of nuclear weapons against fortified underground sites.”
Analysts told Reuters on April 11 that investors
“poured money into precious metals to diversify their
portfolios on worries about inflation, tensions in the Middle
East and uncertainties over the dollar's outlook because of
the U.S. trade and budget deficits.”
Whatever the reasons, gold continues to look
strong and many believe the bull season may defy history this
“I'm not going to tell you that things
are going to be different this year,” says Casey. “But
only because the person who tells you "this time is different"
is usually wrong and often walks into a disaster.”
Casey points out that long-term trends show
what’s normal, not necessarily what’s inevitable.
The trends also show that from January 1975 through January
1980, while the seasonal pattern generally holds up, the trend
is clearly for higher lows and higher highs throughout.
“That is, in our view, the track
we are currently on,” says Casey. “While gold's
price reflects the long-term seasonal pattern, the pattern
is overlaid on a strong upward trend.”
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