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T'is The Season? Maybe Not.


The Gold Report   Printer Friendly Version
April 13, 2006

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 year.

“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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