Category Archives: Gold Articles

Gold’s Seasonality Has Changed

gold bar

By: Julian D. W. Phillips, Gold Forecaster – GoldForecaster.com 
Unlike most metals gold had a defined set of seasons over the year. The factors that dictate these seasons are very well established based on past demand patterns. But these seasons have now changed as we will see from May onwards, when gold goes into its quiet time often referred to as the “Doldrums” after the area in the Atlantic where there are no Trade Winds taking sailing ships back and forth. Below is why you cannot expect such quiet times and such busy times that we saw in the past!

 

The start of the traditional gold season in the developed world.

Taking a typical ‘ordinary’ gold year, one would start the year at the beginning of September.   This is when the developed world returned from their summer holidays and faced the end of the year festivities.   On their return from holidays, jewelry manufacturers would enter the gold market to buy gold to manufacture Christmas presents from as well as to keep up the supply of gold jewelry to the retail market for ornaments and presents.    This demand would be fairly heavy right through to November, when the manufacturing would begin to slow and delivery to the shops would take place.    The romance of Valentine’s Day would be the next important date for this trade.   Thereafter the year would slow to the all year round trade that reflected the economic activity of the time.

 

Industrial demand would follow a similar pattern governed by the holiday periods in the different trading blocs.   Demand would again reflect overall global economic activity, which as you know is currently dropping fast.   But the uses for gold are highly specialized and would tend, we believe to be less vulnerable to a slowdown than other items.   Computers and other electronic applications have become more of an infrastructural set of products that have to be replaced to ensure that operations can run.  Hence this type of demand has a low seasonality pattern.

 

The start of the traditional Indian Gold Season.

The largest gold market in the world is in India which at its peak can import over 850 tonnes a year over one third of the newly mined gold production.   It too has a well defined set of seasons.   Again their year starts at the beginning of September, when the harvests are in and sold.   The cash proceeds from agriculture are not taxable, but the profits from their investments are.   In order to duck the taxman’s radar, these proceeds are invested in property or gold, usually.   The festival of lights follows in October and because of the religious implications gold is bought particularly on ‘auspicious days’ before and after these Hindu festivals.   The “Marriage Season” commences in October and lasts through until May of the next year.   Again these days are ‘governed’ by religiously auspicious days, ahead of which gold is bought in quantity.   With the bride coming to her groom covered in gold and bearing it as a ‘dowry’ gold has woven itself into the fabric of Hindu family life.   As a bride cannot own assets, but does own cash the financial liquidity she brings makes for a sufficient ‘working capital’ for the marriage to start on a sound financial note.  

 

This market is so large that it adds to the entire global seasonality for gold.   At the end of the Marriage season in May, the globe’s gold market moves into the “Doldrums”, named after the area in the South Atlantic where a ship moves out of the Trade winds into a quiet area, which used to halt sailing ships until the Trade winds blew again.   This period went from May until September and completed the gold year.   In India May heralds the time when crops should be planted just ahead of the Monsoon, the heavy rains that lasted through the summer.   By August these are almost ready for harvesting leaving the hard work of doing so through August.   The date when the Monsoons arrived are critical to this timetable and consequently gold’s.

 

The changes to this pattern

2008 and 2009 have seen these patterns virtually destroyed!   The jewelry market has diminished considerably due to the buoyant gold price, lessening its impact on the September to December pattern in the developed world.   In India there have been virtually no imports in the last 6 to nine months, because Indian buyers have felt that price were just too high.     Right now they are still nowhere to be seen.   So the idea that the gold market will quieten in May, becomes a non-event, because it’s been quiet since the start of the current ‘gold year’ which began in September 2008.   We do not expect to see any drop off in demand in the gold market then.

 

So what has kept the gold price up and demand high?   It is demand from a new and growing source.   It is the non-seasonal long-term investment demand from wealthy individuals and institutions eager to diversify into assets that will hold their value when other assets are falling in value.   So great has this demand been that it has pushed the gold price out of the reach of the usual seasonal factors and will continue to do so until it is satisfied.

 

What of jewelry and Indian demand.   We do believe that this demand will resuscitate, as higher prices are established for gold and Indian can believe that after buying it at these prices it will not fall back again.   However, as their profits don’t rise with the fall in the value of the Rupee, the quantities that they are able to buy will lessen.   As to the developed world’s demand for gold a similar transition will take place.   After all gold is not only a metal that does not tarnish, it is a metal signifying both wealth and significance.   If one has to pay more for a wedding ring then, it has greater impact on the wearer in both ways.   It is also one of those items you must have.   Hence, again, once an adjustment to higher prices has been made demand will recover in the developed world for jewelry too.  

 

Future seasonality?

But the seasons have changed from a yearly pattern to an event pattern.   As systemic decay establishes itself and investment perspectives factor in the growing uncertainties of this world gold as an asset in investment portfolios will grow.   The traditional gold market will find it hard to accept persistently rising prices, so the gold price must keep on rising to push out jewelers and traditional retail demand.   This continues to happen even now.  

 

So from May until September expect the unexpected.  Indian demand will not drop off because it was not there in the gold season and still remains sidelined.  The seasons have changed so much that we could well see a busy gold market, right through the ‘Doldrums’ from May to September?  

 

As traditional demand tries to get back in, expect prices to rise at that point, leaving traditional demand as only a support for gold prices, whenever they start to fall and consolidate.

 

Investment demand will dictate the seasons now with traditional demand taking a back seat.   The volume of their buying is currently sufficient to replace traditional demand.   How long will this last?   For as long as the global financial system remains faltering and unable to carry through its tasks reliably.   In other words, until confidence is restored once more!

What if They Returned to the Gold Standard?

(They can’t, but we can.)

Silver Stock Report

by Jason Hommel, December 10th, 2008

What if the Government went back on a Gold Standard?

Do do that, they would need to use their gold to pay off all their debt.

That would give a price of gold if the U.S. Government backed the dollar with gold.

We only need to know two numbers, and do a simple problem of division.

First number:  The national debt.
http://www.treasurydirect.gov/NP/BPDLogin?application=np

The government tells us this is:
$10,656,119,227,403

That’s 10.6 trillion dollars.

Second number:  The U.S. Gold stock.
http://www.fms.treas.gov/gold/current.html

The government tells us this is:
261,498,899 ounces of gold

That’s 261 million ounces of gold.

So  $10,656,119,227,403 divided by 261,498,899 = $40,750/oz. of gold.

In theory, if the U.S. government had the restraint to stop issuing any kind of new debt, and if there was a runaway hyperinflation, the government could credibly stop any sort of runaway gold price by offering gold at a price of $40,750/oz.

That’s the price that could cap the gold market if the U.S. government sold all their gold to all their bond holders.  At that point, all new taxes would have to be levied in gold, not dollars.

It’s important to realize that any effort by the government to sell gold below that price will ultimately fail, and will eventually cause the gold price to go even higher than that price, as that would only deplete their limited stock of gold at inappropriate price levels.

The main point is that T-Bills, which are perceived as the safest haven around, are not safe.  They are only backed up by gold at a rate of $40,750 per oz.  With gold trading today at around $800/oz., the U.S. gold backs less than 2% of the value of the issued bonds, or stated another way, $800 is 2% of the price of $40,750.  Gold, at today’s prices, is clearly a far superior safe haven.

And silver, which is in short supply, due to relentless industrial demand that has consumed nearly all world silver supplies, is even safer.

Clearly, the government cannot offer gold at $40,750 per oz. today.  There would be no buyers.  But, over time, the gold price may rise to such levels, and beyond, as a generation of people slowly wake up to the monetary fraud of the last 29 to 95 years, depending on whether you count from 1980 or 1913.

I am not an advocate of a return to a gold standard, where gold backs up paper money.  I’m in favor of a return to using silver and gold coins and bars as money, as measured by weight, and traded at their intrinsic value according to the price in an open and free market place.

Sincerely,

Jason Hommel
www.seekbullion.com
www.silverstockreport.com

Brough to you by Alan’s Money Blog:

http://www.alansmoneyblog.com

Gold Jumps on US Election-Day as Investors Worry About Huge Amounts of Money Going to Banking Rescues

Spot Gold Prices jumped into the Wall Street opening on Tuesday, adding to an overnight rally and touching a 5-session high of $745 an ounce as European stock markets rose for the seventh-day running.

The US Dollar slipped back ahead of today’s presidential election, losing 2.5¢ to the Euro and reversing half of Monday’s gains vs. the Pound Sterling.

For British investors looking to Buy Gold today, the price rose to four-session highs above £465 an ounce. The Gold Price in Euros held below €578.

“There’s some physical demand from investors in Asia and Europe,” according to Dick Poon, head of precious metals trading in Hong Kong for Heraeus, the German-owned refining group.

“They are seeking to divert some of their assets into gold as they continue to worry about paper currencies and the banking system in general.”

Today in London the Royal Bank of Scotland – which led the world’s biggest-ever banking takeover in 2007, buying Dutch bank ABN Amro for €70 billion (then $100bn) – reported a £206 million write-down ($330m) for the third quarter.

That added to its £5.9 billion cuts ($9.4bn) from the first half of the year.

Looking to join RBS in raising private capital – and thus escaping the low-bonus, no-dividend rules of the UK government’s bail-out – Lloyds TSB is said to be negotiating with ten sovereign wealth funds from the Middle East and Asia.

The UK’s largest mortgage lender – Spanish-owned Abbey – today raised its interest rates by 0.5%, despite expectations that the Bank of England will cut UK base rates to a four-and-a-half year low of 4.0% on Thursday.

Across the Channel in Paris, the French prime minister threatened to “change managers and assume control of strategy” if the country’s private banks do not start lending freely to households and business.

The Reserve Bank of Australia this morning slashed its key lending rate by 0.75% to a near-seven year low.

“All countries in the world have been printing money, the United States in particular,” said legendary commodities investor Jim Rogers – co-founder of the Quantum Fund with George Soros in the mid-1970s – to a meeting of private investors in Amsterdam late last week.


“That created a huge amount of money, resulting in the icing on the cake for commodity prices. But fundamentally you have to look at supply and demand.

“The oil supply will fall with 6 to 9% each year, according to the International Energy Agency. The demand for oil will increase in China and developing countries. This has nothing to do with economy, the market is simple. It is simply the law of supply and demand.”

“People don’t understand that there is a huge bull of commodity prices on the way. We will have to deal with high inflation.”

In the commodity markets today, however, crude oil struggled below $64 per barrel, while soft commodities and base metals held flat after last month’s record volatility.

The CRB-Reuters index of the world’s 19 most heavily traded raw materials dropped 1.5% to stand almost one-half below its peak of June.

“The [platinum-group metals] do not look like putting in any significant rallies in the short term,” says this morning’s note from Mitsui, the precious metals dealer in London.

“Global economic data continues to disappoint, with poor US auto plunging by 32% in October to the lowest levels for 25 years. Poor figures were also seen in Europe – Spain down 40% and Italy down 19%.”

“There is currently no bullish news for PGM,” agrees Walter de Wet for Standard Bank in Johannesburg. “The latest vehicle sales data will keep the metal under pressure.

“On the production side, labor unions in South Africa indicated that Lonmin might lay off workers because of low PGM prices,” says de Wet, adding that current price levels now make production cuts “inevitable”.

Gold Mining companies are already delaying and moth-balling new exploration, with Mark Cutafini – CEO of AngloGold Ashanti, the world’s third largest Gold Miner Stock – setting “something in the order of $900 to $1,000 an ounce” as the price needed to encourage new investment in digging up the metal.

Gold production in Zimbabwe – formerly Africa’s third-largest producer – has the “been brought to its knees” by bad government policy said the Chamber of Mines in an email last night.

Annual inflation, fueled by the money-printing Zanu-PF government of Robert Mugabe, has now reached 231 million per cent according to Reuters.

Please Note: All articles published here are 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.

Article c/o: BullionVault