Summer Gold-Buying Season Approaches

Buying activity by stockists and retailers in India and Pakistan is driven by wedding season demand in the fourth quarter.

I understand that Dhanteras is the festival of wealth and prosperity is celebrated at the end of October and kicks off the main Gold-buying season in India. Approximately 70% of India’s Gold and Silver is purchased by rural farmers. Cultural beliefs in the rural areas lead farmers to invest their money almost entirely in precious metals rather than hold it in a bank account. The fourth quarter is traditionally a busy season for gold, as it captures post-monsoon rural spending, major festivals and auspicious wedding days. If farmers have a good harvest this is often manifested in strong Gold prices at the start of the year as farmers invest their income and looking at the charts this certainly has been true over the years.

However the summer months starting in June and in particular July also show a pretty striking positive trend and this has been very clear over the past 5 years or more. Perhaps this is when stockists and retailers begin purchasing in anticipation of the retail buying season in the 4^th quarter. Let’s investigate with a look at the charts. This is what happened in 2013 when Gold rallied strongly, right at the start of July from below 1200 up to above 1400 by late August.

This was also seen in 2012 and the rally lasted longer, right up o the beginning of October.

2011 was a bit more like 2013 with the rally ending in last August but with a big positive move from below 1500 up to above 1900 in less than 2 months.

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2010 saw a particularly strong rally through to the end of October driving the price from just above 1150 to above 1420 in early November.

Finally 2009 was a great summer for the price of gold as it rocketed from the start of July right up to late November seeing a price increase from 908 up to 1226. With geopolitical tensions in the Middle East and the Ukraine providing some support to the price of gold this summer it is worth bearing in mind the price action of the last 5 years. Even in the 2011-2013 bear trend we saw significant gains in the summer months. Are we now witnessing the summer 2014 rally in gold since the beginning of June?

The final chart above shows the picture for gold over the past 2 months and demonstrates what could be a developing bull trend. If we can hold above the 100 day moving average at 1302/03 (blue line) perhaps the trend can continue in to August. However if prices start to dip below the 200 day moving average at 1285 this will disrupt the short term bull trend and risks will increase for holders of gold.