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The “Golden Season” is Just Beginning
September began with a bang – a 400-point Dow decline and an $8 rise in gold prices. Once again, the U.S. stock market was torpedoed by some negative economic news coming out of China. As CNBC’s Brian Sullivan said during the mid-day stock market massacre, “gold is the only safe haven right now.”
Gold’s rise is all the more amazing since it comes in the face of a decline in most other commodities. On Tuesday, September 1, gold rose $8 while the CRB index of 19 commodities fell nearly 3%, from 202 to 196. That tells you that gold is bucking the commodity trend, marking this rise as a “crisis haven” buy.
Throughout history, gold has been a safe haven for investors who seek diversification and protection from a volatile stock market. In the last century, September and October have been the two worst stock market months, but September has also been the best month for buying gold, rising an average 2.3% since 1969.
As we have often said, the stock market should form the lion’s share of most portfolios, but precious metals serve a vital role as a portfolio stabilizer, an investment that tends to “zig” while stocks “zag.”
During August of 2015, the major stock market indicators were down over 6% while gold rose by 3.33%.
August was gold’s best month since January as gold remains the “star” in an otherwise depressed commodity sector. From July to September 1, the CRB commodity index fell sharply (-12.5%), from a reading of 224 on July 1 to just 196 on September 1, but in the same time frame, gold fell by only 3%.
Gold was helped in August by a slightly weaker dollar. Although the dollar rallied strongly in the last week of August, the dollar was down 2% to the euro in August, as the euro rose from $1.0983 to $1.1212.
We know that gold’s latest surge is a “crisis hedge” move because gold coin sales shot through the ceiling in the last week of August, driven mostly by fears of steep stock market declines in China and the U.S.
Specifically, U.S. Mint sales of gold coins skyrocketed in late August after a calm first 21 days of August. Coin News reported on Monday August 31 that “Mint gold coins were on fire,” as American Gold Eagle sales in the week of August 24-28 topped the full-month totals in February, March, April and May.
Sales of the American Gold Eagle and American Gold Buffalo coins in the week of August 24-28 reached 68,500 ounces, more than three times the previous week’s 16,500 ounces. Silver sales were slower, but that was mostly due to massive silver coin buying in July, which disrupted silver coin sales in August.
Some investors wonder why gold hasn’t soared even more than 3%, given the global crises. The simple answer is that the current cocktail of global crises is not as serious as when gold previous soared in 1976-80 and in the post-9/11 world of 2001 to 2009, which featured several hot wars and financial bubbles.
The current crisis is in response to an economic slowdown and market crash in China, but that’s mostly a “normal” correction after China’s astronomical growth rates in recent decades and a stock market bubble in China in the first half of 2015. (Chinese stocks are still above their 52-week low.) Outside of China, there are few major hot spots or looming financial crises which would cause the gold price to rise faster.
Gold’s Best Season Runs from August to January
The best news for gold is happening behind the scenes instead of in the daily headlines. We are entering gold’s best season because of normal human activities like weddings (in India), gift-giving (at Christmas and Valentine’s Day in the West), as well as the Chinese New Year, falling in January or February.
Here’s how the months compare, 1969 to 2012, with September as #1 (+2.3%), and January #2 (+1.6%):
The gift-giving holiday season is the time when most gold jewelry is fabricated and bought. As you can see from this chart, gold’s gains in the six months from August 1 to January 31 are more than twice the gains of the other six months. Specifically, gold has risen an average 7.27% from August to January vs. just 3.32% average gains in the other six months, from February 1 to July 31. This is the “golden season.”
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