Gold Near Summer Lows Prior to Strong Seasonal Rally

By: GoldCore

GoldCore believe that gold has hit or is soon to hit its traditional late summer low price prior to the traditional strong gold rally in the autumn and early winter months.

Recent years have seen a late summer sell off with a low price being seen normally between mid July and mid August.

We commented on this very important seasonal trend on Friday and were quoted up by Bloomberg:

Gold May Fall, Heading for 'Summer Doldrum Lows,' Survey Shows

"Gold's trend looks to be down again, Mark O'Byrne, executive director of Goldcore Ltd. in Dublin, said by e-mail. Gold is "likely to see the summer doldrum lows in the next two weeks, and may decline to as low as $864/oz, followed by a rebound, he said.

"Buying gold during the summer doldrums has been a winning trade for most of the last 34 years and especially in the last seven years, according to O'Byrne.

The weekly gold survey has forecast prices accurately in 157 of 272 weeks, or 58 percent of the time.

http://www.bloomberg.com/apps/news?pid=20601102&sid=aA1TCOpJYI4Q

Gold Rises, Heading for Monthly Gain, on China's Demand Outlook

Jewelry makers usually stock up on gold after summer in the Northern Hemisphere for the wedding season in India and year-end holidays in the U.S. and Europe, according to Mark O'Byrne, executive director of Goldcore Ltd. in Dublin.

Gold has advanced 6.5 percent this year, lagging most commodities as investors sold the metal. It may drop to as low as $864 in the next two weeks before rebounding, O'Byrne said.

http://www.bloomberg.com/apps/news?pid=20601012&sid=aT91UGtcFEps

Strong Historical Precedent for Low Prices in Late Summer Prior to Rally

Buying gold during the summer doldrums has been a winning trade for most of the last 34 years (see chart) and especially in the last seven years, averaging a gain of nearly 13 percent in just six months after the summer low (summer low is normally between mid July and mid August).

The primary reasons for this are that Indian and Asian gold demand is strongest in these months due to the harvest season (farmers get paid cash for crops and buy gold as savings vehicle) and then the Indian festival and wedding season commences. Also investment players come back from holidays - many of whom are aware of gold's positive performance in the autumn period. Also western holiday jewellery demand kicks in late in the year for Thanksgiving and Christmas and finally Chinese New Year is increasingly important on the demand side at the end of the calendar year.

These important demand factors normally result in gold's strongest performance in the autumn and early winter months.

Gold's deep and lengthy consolidation since March 2008 should see a very sharp rally in gold's favoured Autumn months (as was seen last year and in nearly all years since 2000).

Correction and consolidation in any market is healthy and normal. This looks likely to be the last such sell off prior to a strong rally into the autumn as is typical.

In the summer of 2007 after a lengthy period of consolidation similar to recent months, gold fell some 7% from $687/oz on July 16th to $641/oz on August 13th. The $641/oz reached on August 13th marked the seasonal low and subsequently gold rallied strongly in August, September, October and early November. It reached $845/oz less than 3 months later for a return of nearly 32%. Gold subsequently had a shallow and brief correction in November and early December prior to rallying from mid December low of $787/oz to its highs in March of $1003/oz or a return of 27%.

A similar performance can be seen in most previous years in this current secular gold bull market and given the very strong fundamentals we expect gold's performance to be similar in the coming months.

Bullion Services Team

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

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