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09/10/2010

Gold

One of Wall Street’s old saws is that the price of gold rises from September through year end. As you’ll see below this has indeed been the case the last nine years, and, further, gold prices traditionally rise in September as well (8 of the last 10), for example.

One thing that happens in September, specifically, is you have increased demand from jewelry makers as they stock up for the wedding and festival season in India, which happens to be the largest gold market in the world, though on this front China is rapidly catching up. And then, of course, you have rising demand come December in the Western world.

In India, gold is also increasingly seen as an investment and in the second quarter of this year, investment demand for gold there was up 38%, with $1.6 billion purchased. But during the same period, investment demand in China rose 187% over year ago levels. [However, jewelry demand in Q2 was down fractionally in India and up slightly in China.]

But the surge in gold prices since 2004 in particular is now leading to a slew of mergers among the miners; witness the likes of Kinross Gold acquiring Red Back Mining for $7.1 billion and Goldcorp buying Andean Resources for $3.4 billion in just the past two weeks.

It’s interesting to note that back in 1998, when the World Gold Council started measuring such things, investors represented just 6.9% of demand, with the rest jewelers, dentists, electronics manufacturers and the like. By 2009, though, investors made up 39% of gold purchases. In the second quarter of 2010, this rose further to 51% over concerns with Europe’s sovereign-debt crisis. Gold’s traditional safe haven status has only increased since the financial crisis first hit.

But what if the global economy recovers in earnest, particularly in Europe and the U.S.? Will investors then go back from gold to stocks? Perhaps. But at the same time, others say that with the likes of India and China continuing to power forward, particularly in a scenario where the Western world is picking up, demand from these two and the rest of the emerging markets, with rising incomes and an exploding middle class, could easily trump any outflows in a move from the shiny stuff to stocks.

Gold Prices / Sept. – Dec.

2000…274 (8/31)…272 (12/31)
2001…273…276
2002…312…342
2003…375…417
2004…407…435
2005…433…513
2006…623…632
2007…672…833
2008…833…869
2009…955…1087
2010…1246…???

[Prices are London closing figures…there will be a slight difference with U.S. prices on these same days.]

Sources: Wall Street Journal, Barron’s, World Gold Council, USA Gold

Wall Street History will return in two weeks.

Brian Trumbore
 



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Wall Street History

09/10/2010

Gold

One of Wall Street’s old saws is that the price of gold rises from September through year end. As you’ll see below this has indeed been the case the last nine years, and, further, gold prices traditionally rise in September as well (8 of the last 10), for example.

One thing that happens in September, specifically, is you have increased demand from jewelry makers as they stock up for the wedding and festival season in India, which happens to be the largest gold market in the world, though on this front China is rapidly catching up. And then, of course, you have rising demand come December in the Western world.

In India, gold is also increasingly seen as an investment and in the second quarter of this year, investment demand for gold there was up 38%, with $1.6 billion purchased. But during the same period, investment demand in China rose 187% over year ago levels. [However, jewelry demand in Q2 was down fractionally in India and up slightly in China.]

But the surge in gold prices since 2004 in particular is now leading to a slew of mergers among the miners; witness the likes of Kinross Gold acquiring Red Back Mining for $7.1 billion and Goldcorp buying Andean Resources for $3.4 billion in just the past two weeks.

It’s interesting to note that back in 1998, when the World Gold Council started measuring such things, investors represented just 6.9% of demand, with the rest jewelers, dentists, electronics manufacturers and the like. By 2009, though, investors made up 39% of gold purchases. In the second quarter of 2010, this rose further to 51% over concerns with Europe’s sovereign-debt crisis. Gold’s traditional safe haven status has only increased since the financial crisis first hit.

But what if the global economy recovers in earnest, particularly in Europe and the U.S.? Will investors then go back from gold to stocks? Perhaps. But at the same time, others say that with the likes of India and China continuing to power forward, particularly in a scenario where the Western world is picking up, demand from these two and the rest of the emerging markets, with rising incomes and an exploding middle class, could easily trump any outflows in a move from the shiny stuff to stocks.

Gold Prices / Sept. – Dec.

2000…274 (8/31)…272 (12/31)
2001…273…276
2002…312…342
2003…375…417
2004…407…435
2005…433…513
2006…623…632
2007…672…833
2008…833…869
2009…955…1087
2010…1246…???

[Prices are London closing figures…there will be a slight difference with U.S. prices on these same days.]

Sources: Wall Street Journal, Barron’s, World Gold Council, USA Gold

Wall Street History will return in two weeks.

Brian Trumbore