GOLD RUSH, Jump in or Wait out? – Part I

GOLD, the love for the glittering yellow metal has peaked in recent months and it is eyeing to reach previous highest mark of $1033.80 in March 2008. After moving sideways for the last six months, Gold price crossed the $1,000 mark for an ounce once again and strongly moving forward.



There are many factors cited as reasons – relating to economics, psychology, mathematical and of course, currency(inflation).


However, does this thousand dollar crossing mean something more? Or, is it a short-term speculation rather than a longer term trend? Also why it always happens in September? And given this situation, Can I buy some gold before moves up to add in my portfolio or wait to go down, are the critical question.



Why Gold always goes up in September?


Gold cannot escape the viscious economic cycle of supply and demand. When there is increased demand with less/normal supply, any commodity price tends to go up.

September has been the best time to buy gold in terms of its month-on-month price appreciation over the past four decades, according to Frank Holmes, CEO and CIO at US Global Investors. Statistical data from 1969 till today do not show otherwise, and so this time round ironically, gold comes into the limelight at a time it’s always been sought.


September is one of the most important months for gold due to various occurrences around the planet. Firstly, the post-monsoon wedding season in India and Diwali, one of the country’s most important festivals lead to a major increase in gold demand. Gold is restocked by jewellery makers who are preparing in advance, for the Christmas shopping season in the United States.


The holy month of Ramadan, which comes to an end by late September this year and is subsequently followed by Eid, sees a tradition of exchanging gifts on a large scale as a mark of celebration all over. Similarly, in China, the week-long National Day celebration starting from October 1 and the lead-up from then on till the Chinese new year, always fuel gold demand in China as well.


Another most consistent correlations for gold and the most commonly accepted fact is its inverse relationship with the US dollar. When gold is up, the dollar tends to be down, and vice versa. As per data going back 20 years, this relationship occurs nearly 70% of the time and September is one of the dollars favourite months to be down. Out of 39 Septembers going back to 1970, the dollar has seen negative performance 26 times, which is more than any other month of the year.


What to look out?


While reports and opinions are pointing towards the dollar weakening and gold strengthening, certain undeniable facts do lend them credibility as well. The fact that the US fiscal deficit is expected to be a record $1.6 trillion, and the White House projected last month that the deficit will grow another $9 trillion between 2010 and 2019.


These huge deficits will fan inflation fears and keep downward pressure on the dollar. This coupled with the fact that the Federal Reserve’s massive stimulus spending and the likely –hood that a low interest rate scenario will be prevalent for a few mote months, only further weakens the dollar position and strengthens gold’s.

Will be continued in next week blog post…

Sources – financialexpress.com

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