The Michael Fuljenz Metals Market Report: August 2012, Week 3 Edition
Platinum rose $75 on Friday (and another $10 Monday morning) after violence erupted at a labor strike in one of South Africa's major platinum mines. Platinum hit its highest price in six weeks after police fired into a crowd of miners carrying guns, machetes and spears, killing 34 last Thursday and 44 total. Only about one in six (17%) of workers have returned to the mine, limiting new production of platinum.
Indian Gold Coin Demand Increases
It seems like not a day goes by that I don't see or hear a major advertisement for the artistically-acclaimed Indian gold coins. I am also receiving more calls from dealers for my book "Indian Gold Coins of the 20th Century," which received the 2010 Investment Book of the Year award from the Numismatic Literary Guild. Just last week, two very large dealers wanted books and other materials to further their sales of $2.50 and $10 Indian gold coins. Both dealers are encouraging their customers to build sets for fun and diversification, something I encourage in my book, along with a comparison to the best examples in the National Numismatic Collection in the Smithsonian Museum. These ads and book requests reflect the growth of demand for many Indian gold coins, which could result in higher prices. Waiting to buy these beauties may result in paying higher prices, as many of these coins seem to be awakening from their recent slumber.
Soros and Paulson "Doubled Down" on Gold Last Quarter
According to Business Week and many other sources, two billionaires added major positions in gold ETF funds to their portfolios last quarter. Paulson & Co. increased its holdings 26%, from 17.3 million shares to 21.8 million shares. (Each share represents a tenth of a gold ounce, so Paulson owns the equivalent of 2.18 million Troy ounces of gold, or about 68 metric tons.) Including gold shares, gold now accounts for 44% of Paulson's U.S. equity positions, up from 25% a year ago. Meanwhile, Soros Fund Management more than doubled its stake in the SPDR Gold Trust to 884,400 shares in the quarter ending June 30.
Moore Capital Management also acquired 120,000 shares of SPDR Gold Trust in the second quarter, up from nothing on March 31. Some other fund managers sold their gold positions, fueling a brief decline in gold's price, but the biggest hitters seem to be doubling down on gold.
These totals usually come to us around the middle of each quarter, since money managers who oversee over $100 million in equities must file a Form 13F with the SEC within 45 days of each quarter's end to show their U.S. listed stocks, options and convertible bonds. They don't have to report cash holdings.
The "Dog Days" of Summer are Ending & the "Golden Season" Will Soon Begin
With gold in a maddeningly narrow trading range and silver is finally moving up from its year-end 2011 figure of $28.18 per ounce, investors must be wondering what happened at this time last year to give us such a massively powerful gold bull market vs. today's sleepy trading floor. A lot has to do with the contrast between last summer and this summer. Last summer, there was wild volatility on Wall Street over the U.S. Treasury debt downgrade by S&P, the political battle over raising the debt ceiling and the imminent collapse of Greece and the euro. Those problems haven't gone away, of course, but summer seasons divisible by four (2004, 2008, 2012, etc.) offer several diversions, including the Summer Olympics and major political nominating conventions, so this August has been as sleepy as most other Augusts for gold and stocks.
As a result of these diversions and the normal August holiday break, there is a lack of volume in most markets this August. The New York Stock Exchange is on track for its lowest-volume month since August of 2006, while gold markets are unusually quiet in China (due to a slowdown in exports and hence capital infusions) and in India, due to recent weather and infrastructure problems. An unusually light monsoon season there has caused a dry spell, so that farmers can't afford to buy as much gold jewelry for their daughters' weddings.
We're only a few days away from September and the birth of the "Golden Season." Last year was an exception - gold soared in August and peaked in early September. This year, gold should return to its long-term pattern of rising fastest in the final four months of the year. A new study shows these patterns in greater detail. Dirk Baur of the University of Technology in Sydney, Australia has gone over daily gold prices in the spot and futures markets for a 30-year period from January 1, 1981 to December 31, 2010, and he has outlined the "autumn effect" (September through November) as gold's best season.
Gold was essentially flat from 1981 to 2001, so most of this study concerns insignificant moves. Given the time frame of the study, it's not surprising to see that gold was historically flat during 10 months of the year, but September (+2.2%) and November (+1.8%) 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," of running to 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 the Chinese 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, despite last year's unusual run in gold prices during August.
Bloomberg's Study of Gold's Bull Market Years Confirms this Seasonal Cycle
Taking this study further forward, profiling the 10 full years from January 1, 2002 to December 31, 2011, Bloomberg has found that the same pattern is revealed: Gold's best months fall in the final one-third of the year. Gold gains more in the last four months of the year (+14.6%) than the first eight months (+8.6%).
Best Months for Gold, 2002-2011
- November +4.42%
- September +4.12%
- December +3.43%
Source: Bloomberg
In addition, gold's best six months usually fall during the wedding and holiday season (September to February), or what Frank Holmes has called the "love" trade.
Gold Gains by Season, 2002-2011
- Fall (September, October, November) +10.8%
- Winter (December, January, February) +8.4%
- Spring (March, April, May) +2.7%
- Summer (June, July, August) +0.9%
Source: Bloomberg
Before last summer, the "summer doldrums" were net negative for gold, but the big surge in gold prices last August lifted the summer average above zero to a slight (+0.9%) gain for the last 10-year's average. Put all of these numbers (1981-2010 and 2002-2011) together and we have good hope for the fall months.
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