By Ron Derby
It seems gold gets its biggest boost during September and especially in these uncertain times. European and US investors get back from their holidays and realise that the dust on their trading desks can no longer be swept under the mouse pad; it has become part of the furniture.
Barring last year’s blip, September has been a good month since the 2008 crisis. Last September, the metal shed over 11% but that was in a month where it reached its all-time high on only the fifth day.
Even South African gold mining stocks have historically found much cheer in this month. September 2008, 2009 and 2010 delivered positive performances for both the commodity and miners. It’s a bellwether for the year.
In the year 2000, the last time gold ended the year worse than it started, bullion fell 1,3% in September. It’s a clear correlation between sentiment and the value of gold.
It is no wonder that gold has found some support over the past few weeks and looks likely to break through the $1,700 an ounce ceiling for the first time since March. Economic news from Europe and emerging market countries such as China has been unpleasant, which has heightened fears over the fate of the global economy and at the same time revived hopes of some form of stimulus.
Returning holiday-makers, the annual US Federal Reserve (Fed) Jackson Hole meeting with other central bankers, and a flood of European policy meetings combine to provide the impetus for gold.
On Thursday, markets’ attention will turn to the European Central Bank meeting, with a particular focus on just how the bank’s president, Mario Draghi, follows through on his promise to support Italian and Spanish bonds.
Whatever path Mr Draghi takes, there will be dissenters. German policy makers fear any intervention will slow reform efforts by southern European nations.
The bigger story, I suppose, for Europe and the euro and safe-haven assets such as gold is the German Constitutional Court case against the constitutionality of the eurozone’s financial rescue fund. The decision is expected next week and if the highest court in the region’s biggest economy were to decide against the fund, it would prove a significant setback in the struggle to contain the sovereign debt crisis.
The US Federal Open Market Committee also meets next week. Some investors are holding onto the hope that the bank will boost liquidity further to bolster their efforts to create jobs.
September may provide that extra push that will propel gold closer to its all-time high, achieved at the same time last year, or ease concerns that would see its 4.8% climb over the past two weeks reverse and reverse pretty quickly. The tone for markets for the next 12 months is being set this month.
The hope of further stimulus injections by the world’s leading central banks as the global economy continues to take significant strain is holding stocks and other asset prices firmer.
Europe’s sovereign debt crisis has spread across the world’s developed and developing economies to dampen global growth prospects.
South African bond yields fell to their lowest level in four weeks on Monday on speculation that the global economy may be set for a flood of liquidity into the system by central bankers trying to boost growth. But so far it hasn’t really worked, so why do markets still feel that it’s the only way to boost growth prospects?
Apart from Operation Twist, the Fed has undertaken two rounds of large-scale asset purchases totalling $2.3-trillion, which have so far failed to reduce the country’s unemployment problem more than three years into the recovery.
The European Central Bank has lowered its lending rates to 0.75% and has adopted various other measures to boost growth in the region by encouraging lending. Today, the region sits with record-high unemployment.
The Bank of England also has historically low interest rates, but it too can’t help the economy to emerge from its slowdown.
Even before the last rate cut, South Africa’s rates were near 30-year lows, which weren’t exactly helping on the growth front.
It’s clear that the real economy needs another trick to get it going. Austerity in combination with accommodative monetary policy hasn’t worked to date.
Maybe politicians shouldn’t be harping on about achieving growth in a period in which we should all get used to the idea that the necessary restructuring of the global economy will come with a period of low growth.
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