Gold's Seasonal Cycle: Time to Buy?
Source: Adrian Ash, BullionVault (7/9/10)
"We got an abrupt switch in the trade last week."
SO WE GOT an abrupt switch in the short-euro, long-gold trade last week.
Widely recommended as it continued to win, the position delivered 22% gains between end-March and end-June; and it looked closely held as Q2 finished, no doubt so funds could highlight it in their quarterly client reports.
Since July 1st, in contrast, a lot of recent inflows to gold are going to be asking whether the summer's drop-to-date is just a dip, a seasonal lull, or the beginning of the end for gold's 10-year bull market.
We'd split the difference, and see what's behind that curtain in the middle.
Yes, the summer lull has arrived later than usual. Since 1968, only 2005 saw June set a new high for the year (daily basis; the chart above tracks month-end prices).
And yes, there's reason to doubt one key driver of gold's seasonal cycle—Indian consumer demand. Its own seasonal shape—led by weddings, festivals and the intervening pre-harvest lull—must have less impact on global prices as Kerala's farmers weigh ever-higher Rupee prices per 10 grams.
But for dollar investors, since this bull market began a decade ago, buying gold in July or August has only failed once to deliver a gain by year's-end. The 2008 low came at end-Oct. The rest of the time, Sept. worked like a starting gun for strong gains in gold.
Does the second-half of 2010 have to play out to script? Of course not.
But even if the bull market is over (which looks unlikely what with global interest rates at zero, let alone with fresh monetary mayhem ahead), even a bear-market fillip would give July's buyers the chance to get out for a profit by the end of September.
Gold price chart, no delay | Buy gold online at live prices
Formerly City Correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault—winner of the Queen's Award for Enterprise Innovation, 2009—where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events—and must be verified elsewhere—should you choose to act on it.