Gold Rises For 5th Straight Week And Posts 6.6% Gain In August
Gold Reached a Near-Record $1,252 Friday morning, before retreating. Gold has now risen five weeks in a row, gaining 6.6% in August. Silver rose 7% in August and another 4% in the first week of September. This morning (Tuesday), we're off to another positive week with gold touching its record-high of $1,261 before shying away from another new record high, for now. This rise comes in the face of a dollar rally, so it computes that gold's "real" (currency-neutral) gain today is about $20 per ounce. Meanwhile, silver touched the $20 "barrier" (at $20.04), before retreating to a few pennies under $20.
The Bottom Line: Stocks rallied to near break-even for the year, while gold and silver rallied to +15% annual gains.
September: Best Month for Gold (and Worst Month for Stocks)
This month is historically positive for metals, as gold jewelry fabrication increases in advance of the holiday seasons. Meanwhile, September is the worst month of the year for the stock market, historically (October is second worst). Stocks rose a bit last week, but that does not change history. Looking more closely at the statistics, September stocks often rise in the first half of the month, on post-Labor Day back-to-school euphoria, but stocks then tend to fade from mid-September through late October, making this a good time of year for investors to balance a portfolio by selling some stocks to diversify into the metals.
Both The Wall Street Journal (weekend edition) and Barron's reminded their readers over this long Labor Day weekend that "September is the worst month for stocks," historically, while September is gold's best month, historically. In Barron's Commodity Corner ("Gold's Happy September Song," September 6, 2010), reporter Matt Whitaker began his column by saying that "gold will get a seasonal boost this month, a time of year when it shines brighter due to pending nuptials [in India] and year-end holidays."
Gold has risen in nine of the past 11 Septembers, while stocks have risen in only four of the past 11 Septembers. What's even more chilling is that some of those stock declines were portfolio killers, like the dot-com bust in 2000, the 9-11 attack in 2001, huge declines in 2002 and the global financial panic of September, 2008. Here's a comparison of gold vs. stocks in the last decade worth of Septembers:
| Year | Stocks | Gold | Gold (+/-) |
|---|---|---|---|
| 1999 | - 4.55% | +20.68% | +25.23% |
| 2000 | - 5.03% | - 1.21% | + 3.82% |
| 2001 | -11.08% | + 7.36% | +18.44% |
| 2002 | -12.37% | + 3.48% | +15.85% |
| 2003 | - 1.50% | + 3.30% | + 4.80% |
| 2004 | - 0.92% | + 2.06% | + 2.98% |
| 2005 | + 0.83% | + 9.23% | + 8.40% |
| 2006 | + 2.62% | - 3.89% | - 6.51% |
| 2007 | + 4.03% | +10.57% | +14.60% |
| 2008 | - 6.00% | + 6.18% | +12.18% |
| 2009 | + 2.27% | + 4.21% | + 1.94% |
| ------ | ---------- | ---------- | ---------- |
| Avg. | - 2.88% | + 5.63% | + 8.51% |
| Totals | -28.67% | +79.35% | +108.0% |
This positive trend continues for the next six months, into February, making this a good time of year for investors to consider a strategic switch, especially for out-of-balance portfolios with little or no gold.
September is the start of a rolling series of seasonal gold-oriented calendar cues: Ramadan in Muslim lands, then the Diwali season in India, Christmas in the West and then Chinese New Year and Valentine's Day. Each of these seasons increases jewelry or bullion demand, especially in India and China, the two leading nations for gold demand. These lands are growing richer faster than any other lands on earth. India just reported second-quarter GDP growth of 8.8% last week, while China's growth rate is in the low double-digits. As The Wall Street Journal reported over the weekend, "Chinese and Indian investors are buying gold bars and coins at an unprecedented pace. During the second quarter, China's investment demand for gold jumped 187% in dollar terms to $1.4 billion, while India's rose 38% to $1.6 billion."
Another Big Wall Street Gold Buyer
Michael Burry (Hero of "The Big Short")
One of the greatest books on market madness in New York is "Liar's Poker," the memoir of the then-young (25) New Orleans-born Wall Street broker Michael Lewis. (He also wrote "The Blind Side," about the left tackle position in football, and "Money Ball" about baseball strategies.) His latest book is "The Big Short," about those few Wall Street professionals who saw through the madness of the real estate bubble and the "collateralized debt obligations" which grew out of that bubble, causing the 2008 financial crisis. The hero of that book is a medical-doctor-turned-market-guru, Michael Burry, who ran a hedge fund that bet 100% (and more) on the certainty that the market in leveraged mortgage debt would fail.
At the end of that book, Michael Burry retired from his Scion Fund a rich man, but frustrated at cynical second-guessing by his clients - whom he made rich. This morning, Bloomberg reported that Michael Burry is back in the market, but not in stocks. He said he is investing in "real" things, including farmable land and Gold. His main reason for buying gold is the decline of the dollar and huge new government spending programs, which will bloat the deficit and devalue the dollar further. The Federal Reserve, he said, contributed to the crisis. Rather than instilling discipline, he said, the Federal Reserve turned on the monetary spigots. Gold will rise, he said, as central banks issue debt and devalue their currencies further.
This morning, the dollar may be "up" a bit, but it is only rising partly because the euro has suddenly weakened, based on new revelations that the euro-bank "stress tests" were dumbed-down to help some sick European banks pass the stress test more easily. This means that gold is up even more in euro-terms today, as paper currencies continue their race to the bottom, insuring that gold will probably keep beating all the paper pretenders.
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