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Gold and Silver - The Bullish Season is coming

By Barry Stuppler      Printer Friendly Version Bookmark and Share
Aug 31 2011 2:22PM

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To my surprise we have seen a sharp increase in the price of Gold during the month of August. Gold is usually unchanged to lower in the June to August period of the year. As I have shown in the data below, the increases in gold and silver normally start in September.  Why, because India is one of the world's largest consumers of gold and fourth largest consumers of silver. The precious metals buying season in India begins in September, with India’s cultural festival and wedding season. Gold jewelry is an essential wedding gift. Both Gold and Silver play a significant role in the nation's cultural festivals and the wedding season, factors that greatly influence the seasonal price movements of both metals. Demand in India continues to remain strong, with the country's biggest jewelry maker expecting gold demand to surge in the next three months by 25 percent, year-on-year, to 250 tonnes. India’s precious metals buying season peaks in October, and usually finishes around December.

I have gone back six years to show the statistics on how gold and silver have performed from September 1st to December 31st of each year.

SILVER

2005

2006

2007

2008

2009

2010

1-Sep

$6.86

$12.75

$12.10

$13.58

$14.74

$19.47

31-Dec

$8.83

$12.90

$14.76

$10.79

$16.99

$30.60

$ Increase

$1.97

$0.15

$2.66

-$2.79

$2.25

$11.13

% Increase

28.81%

1.18%

21.98%

-20.54%

15.26%

57.16%

Silver 6-year Average: 17.31%        -  An Annualized rate of 51.93%

GOLD

2005

2006

2007

2008

2009

2010

1-Sep

$439.60

$621.05

$672.00

$822.25

$955.00

$1,246.50

31-Dec

$513.00

$632.00

$833.75

$869.75

$1,087.50

$1,422.00

$ Increase

$73.40

$10.95

$161.75

$47.50

$132.50

$175.50

% Increase

16.70%

1.76%

24.07%

5.78%

13.87%

14.08%

Gold 6-year Average: 12.71%   -  An Annualized rate of 38.13%

Silver shows a 4 month average increase from Sept 1st to Dec 31st of 17.31%. The results of these calculations are surprising. Silver was down 20.54% in 2008, (the year when our financial crisis drove down all commodities, and the precious metals were also down substantially, except for gold.) In the same years, during the June 1st to August 31st timeframe, Silver was down 26.24% annualized rate, in the face of a generally bullish market

Gold shows a 4 month average increase from Sept 1st to Dec 31st of 12.71% (an annualized rate of 38.13%.) In the same years, during the June 1st to August 31st timeframe, Gold was down 1.26% annualized. Clearly this period of time is the weakest of the year, as gold has had an average annual return of over 20%. If Gold is trading at $1,800 on September 1st, using my average projection for this time period, this would take the price of Gold to $2,028 per ounce by year end.

To understand why the Sept 1st to Dec. 31st period is very good for precious metal prices you need to understand what is happening in India during that period. Approximately 70% of India’s Gold and Silver is purchased by rural farmers. Cultural beliefs in the rural areas lead farmers to invest their money almost entirely in precious metals rather than hold it in a bank account. In a Wall Street Journal article earlier this year, Bhargava Vaidya, bullion expert and director of B.N. Vaidya & Associates, said of the farmers, “They don't trust banks, they trust their jeweler.”

An important factor to consider in looking at Gold and Silver prices for September through April is India’s monsoon season. A good agricultural season is a major contributing factor in the wealth of some 235 million farmers in the country. The more money the farmers make, the more precious metals they buy, thus increasing demand. A poor monsoon season means less money is available for metal purchases which subsequently lowers demand. India’s monsoon season has been satisfactory so far, suggesting high demand. Gold should therefore be relatively well supported, despite rising risk appetite.

If the winter months of 2012 have a healthy crop season, that will translate into robust demand for physical Gold and Silver from India's rural farmers, contributing to a strong price rally in January through April of 2012.

Barry Stuppler

 

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Barry Stuppler, a professional numismatist for 50 years, is well known as an advocate for collectors and investors. He has helped thousands of first-time and experienced coin and precious-metals investors and collectors become successful. Barry is the immediate past president of the 30,000-member American Numismatic Association and currently serves as president of the California Coin and Bullion Merchants Association. He serves as a board member of the largest association of professional numismatists, the Professional Numismatist Guild. Barry co-founded and is a current board member of the Industry Council for Tangible Assets, which represents the Coin & Bullion community in Washington DC. He publishes articles and a daily blog (www.stupplerblog.com) or barry@stuppler.com.