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Gold Passes its Mid-Year Slump
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(July 5, 2011) The US Mint in June cranked out its lowest number of 1-ounce gold eagles (56,000) since August of 2010, proving, if nothing else, that the middle of summer is traditionally a slow time for bullion sales. Is that a useful bit of information?

Since the advent of the U.S. Eagles program in 1986, bullion versions of gold and silver Eagles had been struck exclusively at the minting facility at West Point, New York. Starting this past May, bullion silver Eagles are now being struck at the San Francisco Mint as well. So although the Mint has yet to seriously address its 3-year difficulties in obtaining pure silver blanks in sufficient supply to meet demand for silver Eagles, it now has two separate production areas to suffer future downtime while waiting for something to strike. Somehow, that is progress.

Meanwhile, silver Eagle production continues at around 3,500,000 coins per month – an amount that earlier this year led to shortages and inflated premiums, but as they say, that was then, and this is now. Silver prices have tumbled some $15 from its May high, and demand has fallen with it, so three or four million coins a month matches current sales pretty well.

Gold Eagles are also in good supply, with a paltry 56,000 sold by the Mint last month, plenty to meet the current waning US demand. In the current climate of shrunken US investor interest in gold bullion product, shortages of gold Eagles are, for now, a distant memory.

Where is gold going from here? Obviously no one can answer that with any assurance, and every potential buyer must determine the timing of their own purchase. But for those thinking about buying gold soon, if recent history is any guide, this is the perfect time of year to do so.

The weakness in gold prices over the past few days have followed a rather predictable seasonal trend of lower gold prices in mid-summer. Even more predictable is hearing the recurring excuses for seasonal price weakness: traders are on vacation, the Indian wedding season is over, jewelers aren’t buying, it’s the summer doldrums, and so forth.

Whatever the reason, gold prices over the past ten years (the length of this current bull market in gold) are almost always lower in summer than the rest of the year.

Taking a look at price history from 2001 through 2010, nine times out of ten, the latter half of the year has been the stronger for gold prices. Over the decade just past, a purchase of gold on the first trading day in July could be sold for an average profit of 12.64% on the last trading day in December.

It's only fair to mention that gold's ten-year bull market hasn't really presented any 'bad' times to buy gold. So, even the opposite strategy - buying on the first trading day of the year, and selling the first day of July - has averaged a gain of 5.6% over the past ten years. But the time frame from July to December has showed gains in gold prices of more than twice that rate.

The only time this ‘buy in July’ strategy didn’t work in the past ten years was a 7.55% loss in 2008, that tumultuous and nasty year that noisily kick-started our Late Economic Unpleasantness.

Of course, past performance is no assurance of future success. It’s quite possible that 2011 could be a year in which this strategy proves not to work, just as it failed to work in 2008. After all, no trend continues forever.

For instance, take baseball, and the prospects for the upcoming All-star game. The American League has dominated this contest, going back into the past century. In the stretch from 1997 through 2009, the American League won this annual showdown with the National League for thirteen (13) consecutive years. As Casey Stengel used to say, "You can look it up" at http://www.baseball-almanac.com/asgmenu.shtml

No streak lasts forever, and finally, in 2010, the National League squad won the game 3-1.

Lesson being, stuff happens and there are no sure bets in this world. Someone once said, “you pays your money and you takes your chances.” But there's no denying that a seasonal bet on gold has a pretty fair track record going for it.


 

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