View from the Vault: Back to School with a Bump

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Monday, 07 September 2009 13:58

By Adrian Ash, Head of Research, BullionVault

You get back after the summer break and what do you find? Deposit accounts still pay zero, the FTSE’s trading at 21 times earnings, and Mervyn King wants to monetise 110% of the government’s record deficit. Petrol’s already back above £1 a litre, and the UK looks set to stay in recession longer than anyone else.

House prices could drop another 15% before finding their bear-market low.

Any wonder gold just broke out of its summer doldrums against the Pound...? Rising above £600 an ounce, it’s added more than 8% from the end of June. That’s when BullionVault alerted finance writers to the most common seasonal shape of the gold market, dipping in summer and rising sharply in the autumn and year-end.
Over the last four decades, the gold price in British Pounds fell in twenty out of 39 summers, before rising in autumn and winter to end the year higher.

Thirteen of these “summer sales” came during long-term bull runs, such as UK gold buyers enjoyed amid the 1970s inflation and again this decade.

On the twenty occasions since 1969 when gold dipped in the summer before rising to year’s end, the average gain for UK investors buying in the lowest month between June and September was 13.7% by Christmas.

In the years since Gordon Brown sold half the nation’s reserves at rock-bottom prices in 1999, the sharpest gains for UK investors have come over the six months from September to February on average, rising by well over 14% for UK investors.

There’s no guarantee, of course, that the gold price must surely rise from here. Hedge funds and other leveraged players may be “all in” already, as heavily invested in gold futures as at any time over the last five years save for the most explosive moves. In the physical market, Indian jewellery demand – set to peak with the Diwali festival of mid-October – has collapsed in the face of record-high prices, down 55% from this time last year.

But gold investing appeals most when everything else fails to hold value. Stockholders fearing an autumn sell-off in shares might want to switch early.