Centennial Precious Metals, Inc: Serving Gold Coin & Bullion Investors Since 1973

IRA Investors Increasingly Turning to Precious Metals
By Allen Sykora
DOW JONES NEWSWIRES

Monday, August 18, 2008

Gold may be feeling bullied and bruised but soon could get some help from an old friend -- the seasonal tendency for jewelry-fabrication demand to pick up in the fall ahead of a number of gift-giving holidays around the world.

Some analysts feel this seasonal influence could help gold establish a bottom and start working higher in the not-too-distant future. Others say there could be other factors that pressure gold -- such as further dollar strength. Whatever the development, gold's seasonal tendency should at least negate or minimize the impact of any further bearish developments.

Gold typically softens during the summer, when the investing public in the Northern Hemisphere is more focused on vacations, so the metal often consolidates.

Gold has been especially hard hit during the last month by a recovery in the dollar, by a retreat in crude oil and by long liquidation, with chart-based selling triggered on the descent. December gold on the Comex division of the New York Mercantile has lost more than a fifth of its value in the last month as it fell from a session high of $999.40 an ounce on July 15 to an overnight low of $777.70 that was the weakest level since October.

"It may be a bit premature to be calling a bottom in the gold market at this point," said Peter Grant, senior metals analyst with USAGOLD - Centennial Precious Metals. "But this is about the time of year it tends to happen."

His company's research shows that over the last 35 years, some two-thirds of gold's annual gain occurred between August and December.

John Person, president of NationalFutures.com, said his research shows that gold has finished September higher than it did July in 21 of the last 33 years.

Jewelry buying kicks in ahead of a series of holidays in India during October and November, often referred to as the "festival season," he said. The country is the world's No. 1 gold consumer. A World Gold Council report this week showed that second-quarter Indian jewelry demand was 118 metric tons, or 23.5% of the global total of 504.

Buying also picks up in Western nations ahead of the Christmas shopping season.

"The good news is that we are already in mid-August, and seasonal factors will soon be turning positive," said Jeffrey Nichols, managing director of American Precious Metals Advisors.

Gold demand is normally seasonally weakest in July and August, he said.

"As a result, the metal is especially vulnerable during the summer months to other negative factors and forces," Nichols said. "But, fortuitously, seasonality turns positive in September and builds in the fourth quarter as Christmas-related jewelry fabrication demand and seasonal Asian buying picks up."

A Citi Investment research report Friday calls for gold to eventually pick up, partly in response to potentially stronger fabrication demand. Citi noted that while this week's WGC report showed that global second-quarter jewelry consumption of 504 metric tons was down 24% the same period a year ago, it was up from 444.3 in the first quarter, when the gold price hit a record high.

"We see gold as attractive, heading into a seasonally strong time for physical off-take," Citi said.

Rally To March Record Began After Consolidation Ended Last Summer

Spot gold bottomed near $641 roughly this time a year ago, Grant said, but within a few weeks was over $700 and "never really looked back" before eventually going on to a record of $1,032.50 in March.

Any hopes for another such rally might seem optimistic after the recent chart damage, he said.

"But we have in fact seen strong physical interest, particularly out of the Middle East and India, on this decline," Grant said.

Earlier this year, physical demand dropped "significantly" as the metal rose through $900 and $1,000, Grant said.

"The high prices kept a lot of the jewelry buyers out of the market," he said. "So I think there was a fair amount of pent-up demand building."

Grant said that investment demand for gold also tends to pick up in the autumn. "When people come back from their vacation and the kids go back to school, people start thinking about their portfolios again," he said.

Much of gold's recent weakness has been blamed on a rebounding dollar, which tends to hurt gold due to an inverse relationship. This is not necessarily because of strength in fundamentals for the dollar itself, but is largely due deteriorating economic conditions in other countries, Grant said.

Gold's seasonal strength conceivably could be enough to lift the metal even if the dollar likewise strengthens further, Grant said. For instance, the euro fell from a December 2004 peak of $1.3670 to below $1.17 in November and December 2005. Yet, spot gold rose from a December 2004 low of $431.65 to a December 2005 high of $541.25.

"So there are instances when gold can rally in a rising dollar environment," Grant said.

But while he looks for gold's seasonal factors to be supportive, it remains to be seen whether this would be enough to offset any other bearish developments that might occur.

"There is going to be seasonal demand, and physical buyers are relishing the opportunity to buy around the $800 level again," Grant said. "At the same time, it seems like there could be additional downside potential in the euro that is going to weigh on the gold market.

"We have some opposing forces and the jury is still out on which is the stronger of the two forces."

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-By Allen Sykora, Dow Jones Newswires;
allen.sykora@dowjones.com
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