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'Dog Days' of Summer Ending as 'Golden Season' Just Beginning

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Friday, 31 Aug 2012 01:51 PM Current | Bio | Archive

With summer coming to a close, we are about to enter the “Golden Season.”

The historical pattern is clear, even though last year did not follow the script.

In 2011, gold rose in August and peaked at a price of over $1,900 in early September 2011. Some called that new all-time high a “bubble,” but last August was an exception:

There was wild volatility on Wall Street over the U.S. Treasury debt downgrade by Standard & Poor’s, the political battle over raising the debt ceiling and fears over the collapse of Greece and the euro.

Those problems of 2011 haven’t gone away, of course, but August of 2012 — like most election years — has given investors several diversions, including the Summer Olympics and a political convention, so this August was relatively quiet. Still, gold has already begun a “stealth rally” from below $1,600 per ounce on Aug. 1 to more than $1,660 per ounce in late August.

Now, we enter September, the birth of the “Golden Season.” This year, gold will likely return to its long-term pattern of rising rapidly during the final four months of the year. A new study reveals these patterns in great detail.

Dirk Baur of the University of Technology in Sydney, Australia, has gone over all of the daily gold prices in the spot and futures markets for a 30-year period from Jan. 1, 1981, to Dec. 31, 2010, and his data show that autumn (September through November) is usually gold’s best season.

Gold was essentially flat from 1981 to 2001, so most of Baur’s study reveals insignificant moves. Given the time frame of his study, it’s not surprising to see that gold was historically flat during 10 months of the year, but September (up 2.2 percent) and November (up 1.8 percent) provided nearly all of the annual gains over the 30 years in question. Part of this was due to what the author calls the “Halloween Effect” (investors rushing into gold when the stock market tanks — as it often does in September and October).

This is also called “the fear trade.” The Indian wedding season and gold fabrication for Christmas sales and China’s New Year also bump up the price of gold in September through December. These cultural reasons for gold buying in the fall months still apply.

A More Recent Study of Gold’s Bull Market Years Confirms this Seasonal Cycle

Updating gold’s seasonal cycle for the last 10 full years, from Jan. 1, 2002, to Dec. 31, 2011, data from Bloomberg reveal the same seasonal pattern. In fact, gold has gained more in the final four months of the year (September to December, up 14.6 percent) than in the first eight months of the year (up 8.6 percent).

The Best Months for Gold, 2002-2011
November       +4.42 percent
September       +4.12 percent
December       +3.43 percent
Source: Bloomberg data

In addition, gold’s best six months fall during the wedding and holiday season (September to February):

Gold Gains by Season, 2002-2011
Fall (September, October, November)      +10.8 percent
Winter (December, January, February)     +8.4 percent
Spring (March, April, May)                       +2.7 percent
Summer (June, July, August)                     +0.9 percent
Source: Bloomberg data

Put all of these numbers together and we have good hope for rising gold prices in the fall months.

About the Author: Mike Fuljenz
Mike Fuljenz is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the NLG award winning Michael Fuljenz Metals Market Weekly Report.  Discover more by Clicking Here Now.

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2012-51-31
Friday, 31 Aug 2012 01:51 PM
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