05 September 2008

Some Proper (and Improper) Justifications for Buying Gold

If only there were a vine, then I could swing across this pit and grab that tempting gold, shining and taunting from so close, yet so far. At least according to the primitive game physics of an Atari 2600 title.

Today, I picked up more shares of GLD at $78.49, for a new cost basis of $78.72. I know, you're thrilled. Absolutely ecstatic for me.

Well, here's why I bought some soft yellow metal.

Previously, I didn't find any justification for the seasonal rise in the price of gold. Apparently, Indians (of the South Asian persuasion) have something to do with this phenomenon, as well as slacker European jewelers returning to work after spending August pastying up the Greek isles and the Gold Coast of Spain.

This piece suggests a justification for the seasonal rise in the price of gold:
70% of all gold manufactured each year goes into jewelry, and is one of the major reasons for the seasonal pattern in gold.

Consumption causes prices to be low in August when European jewelry fabricators are on vacation but then to rise immediately thereafter. The fourth quarter is the peak season for gift-giving, with gold jewelry most highly prized.

Harvest and wedding festivals begin in September in India --- the world's largest consumer of gold. Then come year-end holidays in the United States and finally Chinese New Year. By late December, gold demand can be exhausted.

You can find this same reasoning on other sites throughout the interweb, too, like here:

Seasonality also exists in gold. There are times of the calendar year when gold tends to do well and other times when it does not. Although there are many varying reasons for this phenomenon around the world, the most famous example of gold seasonality has to be the Indian wedding season.

Indians have a deep cultural affinity for gold, so in the autumn India 's farmers tend to invest their profits from harvest in gold. But even more gold is bought for the Indian weddings that happen late in the year during festivals, mainly in October and November. Something like 40% of India 's annual gold demand occurs in this short period of time. Wedding gold is often in the form of intricate 22-karat jewelry that the bride's parents give her to secure her financial future and financial independence within her husband's family.

This same piece produced this very busy chart below that somehow shows that it's a good time to buy some gold. Or you could just look at my much-clearer annotated charts here, here, and here.

For some belabored writing in favor of a position in gold, check out this piece at Marketwatch. Or if you want some technical justification full of Elliott Wave and Fibonacci goodness, check out this piece. If you think someone who refers to gold as the "Ancient Metal of Kings" is worth reading, well good luck with this post.

1 comment:

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