Gold buying occurs regularly for the jewelry markets in India beginning around September. Every year, almost without fail, the jewelry market picks up steam and gold demand begins to soar from across the globe. This wedding jewelry demand from India helps drive up the price of gold often through January or even February of the following year.
Gold Bullion Price Peaks
While India is buying and helping drive the price of gold up, investors, hedge fund managers, and speculators all hop on and ride the profit bandwagon. Prices jump even higher still. Sadly, many unknowing gold buyers then sense a rush into gold, perhaps having heard advertisements on the radio or possibly on TV (factor 5 of gold bullion marketing). New buyers rush in and buy gold at a price spike.
Just as predictably as the price rises, comes the gold price fall. Beginning around February, gold demand from India has dropped off as the wedding season ends. Since the marginal demand has shrunk from India, gold prices steady out, or even begin to drop. Around March, gold buyers that invested while gold was at it's relative peak, suddenly get cold feet. Wishing to sell out because prices are leveling, a rush to sell gold begins, and the market begins it's downward fall.
This completes a cycle of buying high and selling low. Exactly the opposite of profitable gold investing.
Gold Priced by COMEX
Indian gold buying has a pronounced positive effect on gold prices, though it is not the primary driver in seasonal gold price movements. Buying and selling of paper futures contracts on the COMEX- the New York Mercantile Exchange division that handles gold, silver and other commodity trading- swings gold prices even more.
Fortunately, the COMEX biding and selling (asking) market reports the activities of traders. This report, called COT for Commitment of Traders, shows the number of buyers and sellers in different segments of the market. Seasonally this will vary along with the Indian buyers and sellers.
During the summer months generally there are far fewer gold traders active. Summer months from May through September often sees less trading, and fewer traders active. Part of the reason for the gold market slowdown is traders take vacations during this period. Unless investment demand rockets higher, the gold market goes into hibernation during this May-October period.
If an investor knows about these seasonal fluctuations, buying before the gold price rises and selling before the price falls become much more predictable. Otherwise, buying cheap gold becomes difficult at best and impossible at worst.
The last article of this series will examine the significant effect of the USDX on the price of gold.
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