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It's been a while since we talked about one of MoneyWeek's favourite investments - gold.
In truth, that's because there's not been much to say. Topics such as the pending US house price collapse, soaring demand for various soft commodities and the UK buy-to-let bubble have clamoured for our attention, while gold has just sat there, the price of an ounce drifting up and down between the low and mid $600s.
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But with autumn nearly upon us, gold may well start to become a little more exciting once again
Gold rose yesterday, to near $630 an ounce, due to "expectations demand will increase as jewellers stock up ahead of seasonal buying in India and as investors return from summer vacations," reported Bloomberg.
"Gold has gained every September since 2000 as jewellers buy the metal for the winter holidays, the Indian wedding season and as investors in Europe and the US return to work after the summer," the newswire continued.
Apparently gold has only fallen nine times during the month of September since it began trading on exchanges in 1975. As Ambrose Evans-Pritchard puts it in The Telegraph: "Even when [gold] churned ever-down from a peak of $850 an ounce in 1980 to $255 in March 2001, it usually managed to eke out a meagre counter-rally each September."
We happen to think that Mr Evans-Pritchard is a very good journalist. This may well be because we agree with him most of the time.
So will gold rally this September? And might that take it back towards the heights of $730 an ounce, from where it plunged in May?
As Evans-Pritchard points out, if you put your faith in charts (and UK investing legend Anthony Bolton does, so unless your portfolio returns are better than his, perhaps you shouldn't just dismiss them out of hand), it just might. Gold may have taken a dive in May, but it "bounced straight off the crucial 200-day moving average watched by chartists and is now forming a base around $620 - technically undamaged."
Meanwhile, the September 26 deadline for European central banks to sell this year's 500 tonne quota of gold is approaching and so far only 340 tonnes has been sold. UBS precious metals strategist John Reade, says: "It will be a bullish signal if they fail to take up their quota."
It may not be such a surprise then, to learn that UBS has also seen increased demand for December 2006 gold call options, at a strike price of over $1,000. If the price doesn't reach $1,000 by the strike date, the options are worthless to whoever holds them at that point.
But are these buyers being too optimistic? With the US economy slowing down, and threatening to drag the rest of the world with it, won't the boom in metals prices end, dragging the gold price down with it?
Evans-Pritchard points out that gold hasn't always been a good hedge during hard times, falling during the French Revolution and the First World War. "But then it was the world's currency. Now it is the counter-currency, waiting in the wings to challenge an ever more deformed and fragile dollar system."
Despite this belief, he can't bring himself to imagine that the dollar will actually collapse. "It ought to fall, perhaps, to correct the world's vast imbalances, but there is no credible currency for it to fall againstthe Japanese and Eurozone governments will not let it happenthey will counter the US devaluation with devaluation of their own, setting off a fresh cycle of negative real interest rates."
He may or may not be correct on this point. Certainly, the idea that the world's central bankers will happily compete with each other to see who can slash interest rates the fastest is entirely in keeping with what they've done in the past.
But in any case, it doesn't matter. Under either scenario - a dollar collapse, or an interest rate race to the bottom - gold wins. Both situations would cripple belief in the global fiat monetary system and send gold soaring.
As he points out, "Is that what gold is sniffing as a few very rich men and women buy their call options at $2,500 an ounce?"
If you'd like to know more about investing in gold, please visit the Investing in gold
Turning to the stock markets...
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Big gains in the mining sector saw the FTSE close at its highest levels of the day, up 37 points at 5,986. Strong metals prices - particularly gold, copper and silver meant blue-chip miners Kazakhmys, Anglo American, BHP Billiton and Rio Tinto were the day's biggest risers. However, a dip in the crude price meant that oil stocks - including BG Group, Cairn Energy and BP - suffered losses. For a full market report, see: London market close
In mainland Europe, the lower oil price sent the Paris CAC-40 above 5,200 for the first time since early May. The index ended Monday's trading 19 points higher, at 5,203. German stocks also performed well, with the Frankfurt Dax-30 closing at 5,909, 33 points higher.
On Wall Street, markets were closed yesterday for the Labour Day holiday.
In Asia, the Nikkei was down in the morning on profit-taking following the previous day's record session, but went on to close 27 points higher at 16,385.
The price of crude oil plunged by over a dollar over the weekend, last trading at $68.07 in New York. In London, Brent spot was at $67.46.
Spot gold hit a two-week high of $629/oz, but had fallen to $626.30 this morning. Silver hit a three-month high of $13.05 yesterday, and was trading at $13.01 early today.
And in London this morning, mobile phone giant Vodafone revealed its new European CEO is former Chief Executive of Italian media firm RCS MediaGroup Vittorio Colao. In other news, recruitment firm Hays posted a 15% annual profit rise, boosted by a 13% increase in fees on a like-for-like basis. The company was visited by the OFT earlier this summer over allegations of possible collusion over construction industry recruitment fees.
And our two recommended articles for today...
How to profit from the commodities bull
- Merryn Somerset-Webb has long been bullish on commodities, especially softs. However, it has been difficult for private investors to gain exposure to this bull market. Until now. To find out more about a new way to invest in commodities, read: How to profit from the commodities bull
Could cleaned-up coal be the fuel of the future?
- It's destructive and dangerous to mine, and burning it contributes to global warming. But new technology being pioneered by China could give coal a whole new lease of life. For more on this revolutionary fuel, see: Could cleaned-up coal be the fuel of the future?
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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