Tis the Season… For Gold

By: Investment_U

Sean Brodrick writes: The first half of this year saw relentless, almost furious selling of gold by big banks and exchange-traded funds.

Investors sold 684.64 metric tons of gold held in exchange-traded products this year, erasing $54.3 billion in value.

Who bought all that gold? Buyers in China, India and other parts of Asia scooped it up at discount prices as fast as they could carry it. And there’s every reason to believe that gold demand will get even stronger… especially now that the gold-buying season is only now upon us.

The seasonal trend in gold is one that traders follow closely. Here’s a chart showing how gold moves over the course of the year.

Looking at this chart, you can see that gold traditionally bottoms in July and zigzags higher for the rest of the year.

Sure, we can have off-years and even inverse years. But consider that gold spent the first half of this year in a deep slump. So, it’s all the more likely there is room on the upside for gold to charge higher into the close of the year.

So what makes the second half of the year so bullish for gold, anyway? In a word, “festivals.” And the gift giving that comes with them.

We’re heading toward Diwali, India’s festival of lights. Then Christmas. Then Chinese New Year. All of these festivals are good for gold-jewelry buying. And that seasonal strength is reflected in gold prices.

And fundamentals are lining up for the seasonal push…

•Sales of jewelry, coins and bars in China and India will reach as much as 1,000 metric tons each in 2013, the World Gold Council estimates. That’s a combined value of $87.6 billion.
•In the first two quarters, gold buying in China came in at 571 metric tonnes. That is up 45% compared to the same period last year.
•Gold purchases are at 568 tonnes. That is up 48% year over year.

The gold-buying in India is happening despite the fact that the government there has raised import taxes three times in eight months and added draconian restrictions on gold imports.

Heck, thanks to rising import duties and premiums, people in India are paying the equivalent of $1,800 an ounce to buy gold. And they’re still lining up for it.

And it’s not just India and China. Outside of those two countries, another 650 million people are spread across Southeast Asia. More and more of them are joining the middle class, and those cultures have an affinity for gold.

Heck, Indonesia is Southeast Asia’s most populous country, and gold jewelry demand in the country is hitting a four-year high. In fact, it’s up 30% year over year. Add in investment demand, and it’s up 55%. So we can add that to the list of forces that are lighting a fire under gold, as Asian demand for the yellow metal turns white-hot.

In sum: This could be a very big festival season for gold across Asia. And that could send gold prices a lot higher than seemed possible at the depth of the sell-off in June.

Does all this mean gold must go higher? No! Nothing is certain. In fact, it wouldn’t surprise me to see another dip as gold zags before making its next move. But the odds favor continued gold strength for the rest of the year.

Remember that Oxford Club recommends no more than 5% of your wealth should be allocated toward gold. Don’t chase anything. Buy the pullbacks. We should see plenty of them, even if gold is ready to shine again.

Good investing,

Sean

Source: http://www.investmentu.com/2013/August/tis-the-season-for-gold.html

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