September And November Best Months To Own Gold

Today’s AM fix was USD 1,691.50, EUR 1,342.25, and GBP 1,067.44 per ounce.
Yesterday’s AM fix was USD 1,686.00, EUR 1,341.72 and GBP 1,061.65 per ounce.

Silver is trading at $32.06/oz, €25.56/oz and £20.27/oz. Platinum is trading at $1,557.00/oz, palladium at $630.40/oz and rhodium at $1,025/oz.

Yesterday the markets were closed in USA for a national holiday. Gold’s PM fix yesterday in London was USD 1,691.50, EUR 1,345.45, and GBP 1,065.176 per ounce.

Gold inched up to its highest level in 5 months after poor manufacturing data from across the globe increased speculation that central banks will again vainly employ quantitative easing measures in order to prevent recessions and or depressions.

The heightened scepticism shown towards precious metals in recent months is slowly giving way to more positive sentiment and investors are diversifying into gold and the much smaller silver market to hedge against inflation and currency risks.

Hopes are high that Mario Draghi’s speech on Thursday at the ECB’s policy meeting will help solve the 3 year old debt crisis facing the euro currency bloc. These hopes are likely to again be dashed and investors are best served ignoring the central banks and bankers siren call which will again lead to a false sense of security. 

Moody’s Investors Service has downgraded its outlook in Europe from Aaa rating to a negative warning it may downgrade the entire region if it cut’s its rating on the EU’s 4 financiers: UK, France, Germany and The Netherlands.

This will happen – it is only a matter of time before all AAA rated government debt is downgraded as contagion deepens.


Cross Currency Table – (Bloomberg)

The increasingly positive investor sentiment towards gold is seen in the gold ETF’s growing to a record high of 71.729 million ounces on Friday.  August inflows were 1.8 million ounces, up 3% and the biggest monthly rise since November.

Price data on gold in recent years, from 2000 to 2011 (see chart above), and over the long term, from 1975 to 2011 (see chart above), shows that September and November are the best months to own gold. 

The summer months normally see seasonal weakness and it is thus a good time to buy on the seasonal dip. Gold’s traditional period of strength is from late August into the winter and early spring and the traditional March dip.


Gold’s Seasonality Chart (5 Years) – Bloomberg

Gold’s seasonality is seen in the above charts which show how March, June and October are gold’s weakest months with actual losses being incurred on average in these months.

Buying gold during the so-called summer doldrums has been a winning trade for most of the last 34 years. This is especially the case in the last eight years as gold averaged a gain of nearly 14% in just six months after the summer low.

We tend to advise a buy and hold strategy for the majority of clients.

For those who have a bit more of a risk appetite, an interesting strategy would be to buy at the start of September, sell at end of September and then buy back in on October 31st. 

This is obviously more risky as one will incur extra costs and risk the possibility of missing out on capital gains in October.

We caution that the monthly strength of gold in September and November while proven is not guaranteed and price falls in these months are also possible.

We also caution that a core position should always be held in gold in order to protect against the risk of currency devaluation or a systemic event.

NEWSWIRE
(Bloomberg) — Record Gold Sales to Iran Profit Lira Bondholders: Turkey Credit 
Turkey is more than making up for a slide in exports to Europe with record gold sales to Iran, steadying its current-account deficit and boosting lira bonds.

Sales of precious metals to Iran jumped to $6.2 billion this year through July from $21.9 million in the same period last year, accounting for 70 percent of Turkey’s increase in exports this year. The transactions helped narrow the current- account gap to 8.3 percent of gross domestic product from 10 percent in 2011, even as sales to the European Union dropped by $3.4 billion. Yields on two-year lira bonds fell to a three-week low of 7.62 percent on Aug. 31, extending the biggest drop among major emerging markets this year to 335 basis points.

Turkey’s current-account shortfall is the world’s largest behind the U.S. and makes the country the most vulnerable in developing economies to any deterioration in global investor sentiment, according to Moody’s Investors Service. While the country is diversifying its exports away from Europe to nations in the Middle East and North Africa, the gold sales also come as neighboring Iran grapples with trade sanctions.

“Turkey still remains vulnerable to an external demand slowdown caused by the crisis in Europe,” Inan Demir, chief economist at Finansbank AS in Istanbul, said in a telephone interview yesterday. “When you talk about diversification of exports and precious metals such as gold are excluded, the diversification looks much less impressive.”

Lira Decline
The lira lost 18 percent of its value in 2011, the biggest loss globally, and two-year bond yields climbed 390 basis points, the most since 2006, as the central bank increased interest rates to reverse an import boom that threatened to destabilize the $770 billion economy.

Turkey sold more goods to Iran than to any other country in the first seven months, with exports almost quadrupling on an annual basis to $8 billion, more than the $7.9 billion of goods sold to the whole of Africa, including Libya, Egypt and Tunisia, according to the statistics agency data. Turkey imported $7.7 billion of oil, gas and other goods from Iran during the period.

At the same time exports to Europe are declining. Germany bought $7.7 billion of Turkish goods in the first seven months, a decrease of 5.6 percent from a year ago. Exports to Italy shrank by 27 percent to $3.7 billion and to France by 12 percent annually to $3.6 billion, government data show.

Cash Settlement
Turkey has assured the U.S. government it will cut purchases of oil from Iran by 20 percent this year. The government is not exporting gold to pay for Iranian oil and natural gas, Turkish Energy Minister Taner Yildiz said in an interview on July 9 in Ankara.

Iranian business people are receiving subsidized rates on euros, then buying gold in Turkey and exporting it back to Iran, Milliyet newspaper reported on Sept. 2.

Wealthy Iranians in Turkey are collecting gold on behalf of the Iranian central bank and exporting it to Iran, the Istanbul- based Zaman newspaper said July 11. Iranians in Dubai and India are also collecting gold and sending it to the central bank, Zaman said, citing a Turkish economy administration official it didn’t name. Some gold is being imported into Turkey from Europe, refined or re-shaped and then sent to Iran, Zaman said.

“We think the gold exports are actually concentrated on Iran as a method of payment,” Gulay Girgin, an analyst at Istanbul-based broker Oyak Securities, said by e-mail Aug. 31.

Iran, the third-largest supplier in the Organization of Petroleum Exporting Countries, is pumping less crude than Iraq for the first time in 20 years, OPEC said in a report Aug. 9.

Shrinking Deficit
Turkish companies are probably paying Iranian intermediaries for oil and gas in hard currencies, Demir of Finansbank said. The cash is then used to buy gold which is shipped to Iran, he said.

Turkey’s current-account deficit, which includes trade as well as financial flows, shrank for an eighth month in June to $63.5 billion on a 12-month rolling basis. Without the $6.2 billion of precious metals exports to Iran, the shortfall would have been 0.7 percentage point of GDP higher at 9.1 percent, central bank data show.

While Turkey has agreed to cut oil imports from Iran, its officials have said they aren’t bound to abide by broader sanctions imposed by the U.S. and European Union, which are stricter than those from the UN.

Iran supplies about 40 percent of Turkey’s oil, making it the largest single source for the fuel, according to the Energy Ministry. The country pays about $6 a barrel less for Iranian oil than Brent crude, Goldman Sachs Group Inc. said in a report on March 12.

Extra Yield
The lira strengthened 0.2 percent to 1.8162 at 11:04 a.m. in Istanbul. Yields on benchmark two-year lira-denominated bonds dropped eight basis points, or 0.08 percentage point, to 7.67 percent.

The extra yield investors demand to own Turkey’s dollar- denominated sovereign bonds rather than U.S. Treasuries rose 1 basis point to 229, JPMorgan Chase & Co.’s EMBI Global index shows. The average spread for developing-nation debt rose 1 basis point to 318.

Credit-default swaps on Turkey, rated BB, the second- highest non-investment grade status at Standard & Poor’s, fell 1 basis point to 178, according to data compiled by Bloomberg. That compares with 162 for Russia, 151 for Poland and 149 for South Africa. 

Although Turkey’s trade performance is improving, “the picture becomes less encouraging if one factors in the role of gold exports,” Ilker Domac, economist at Citigroup Inc. in Istanbul, said in an e-mailed report to clients on Aug. 31.

“This in turn raises questions about the sustainability of the country’s robust export growth going forward,” Domac said. “It’s too early to get comfortable about the re-balancing process.”

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS
Gold hits five-and-a-half-month high on stimulus hopes, U.S. silver rallies – Reuters

Gold Gains to 5-Month High on Prospects for Additional Stimulus – Bloomberg

Gold prices stimulated to five-month high – MarketWatch

Swiss central bank vows to hold franc down – The Financial Times

COMMENTARY
Evans-Pritchard: Technicals flash amber – ECB & Fed struggle to validate rhetoric – The Telegraph

The Monetary Endgame Score To Date: Hyperinflations: 56; Hyperdeflations: 0 – Zero Hedge

How Long Will the Dollar Remain the World’s Reserve Currency? – GoldSeek

The Consequences of Easy Monetary Policy – Business Insider

Mark OByrne

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