SUMMER DOLDRUMS – GOLDEN OPPORTUNITY
NEW YORK (June 28, 2010) – Jeffrey Nichols, Senior Economic Advisor to Rosland Capital (www.roslandcapital.com), had the following commentary based on recent market activity and the week ahead:
Summer is typically a slow time for gold -- a time of reduced price volatility and seasonally soft prices. There are some good reasons to believe that the summer of 2010 may be the exception rather than the rule.
Either way, this summer is a good time for investors to establish or add to their "core" holdings of physical. Either way, the price is heading higher, much higher, with $1500 gold achievable by year-end. And, it seems very likely that gold will reach $2000 and possibly $3000 or more in the next few years.
The historical seasonal pattern of gold prices was largely a reflection of two important but unrelated factors:
- Holiday-related U.S. and European jewelry manufacturing and sales. With the lion's share of jewelry purchases occurring in the fourth quarter ahead of Christmas, manufacturers would return from summer vacations in September and begin restocking -- and this increase in demand led to seasonally higher prices in the autumn and winter months.
- Annual gold consumption patterns in India also contributed to summer weakness followed by autumn strength. India is historically the biggest gold-consuming market with imports averaging 500 to 600 tons annually. Demand is very much related to religious festivals in the spring and fall. These festivals are considered auspicious times for weddings and the culturally required purchase of gold dowries for the brides to be. In addition, autumn harvests are often accompanied by gold savings-related demand in India's agrarian communities.
There are good reasons to believe that these seasonal influences are diminishing in importance.
- For one thing, jewelry demand in the West is today a much less important component of global gold demand than at any time in recent decades. This is due partly to tough economic time in the United States and Europe -- leaving jewelry consumers and gift-givers much less income to spend on luxury purchases.
- For another, investment buying has become a much bigger component of gold demand -- and the concerns that drive investors know no season. In fact, we think these concerns will be driving gold prices higher over the next few months.
- In addition, China has become tremendously important to the gold market, currently second to India in total consumption. What seasonality influences month-to-month gold demand in China is tied to the Chinese New Year, which falls according to the Lunar calendar in January or February. Much more important, however, is the secular growth in household income and related jewelry and investment demand -- all of which are benefitting from strong long-term growth in China's economy.
- Finally, central bank gold buying has also become an important price driver, one that (like private-sector investment) knows no season. Central banks in countries with important domestic-mined gold, countries like Russia, Kazakhstan, the Philippines, and China, appear to buy at regular monthly intervals. Other central banks and sovereign wealth funds -- including some that choose to remain anonymous -- seem to buy on dips rather than on any seasonally determined schedule. If anything, price weakness at any time of the year would trigger buying from the official sector and limit price declines.
Whatever seasonality shows up this summer, whatever price movements occur, there are good, solid reasons to expect gold prices will be much higher by the end of 2010 . . . and still-higher in 2011 and beyond.
To arrange an interview with Jeffrey Nichols, please contact Liz Cheek of Hill & Knowlton at (212) 885-0682 or elizabeth.cheek@hillandknowlton.com
About Rosland Capital
Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California that buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of investing in gold bullion, numismatic gold coins, silver, platinum, palladium, and other precious metals. For more information please visit www.roslandcapital.com.
About Jeffrey Nichols
Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.
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Contact: Liz Cheek
(212) 885-0682
elizabeth.cheek@hillandknowlton.com
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