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The Bullion Report

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November 24, 2010 in 'The Bullion Report'

Holiday GlitzHoliday Glitz

11-24-10

Holiday Glitz


The western world is marching towards one of the biggest gift giving seasons while India wraps up its festival season. These twin pillars of potential bullion demand can give investors a strong indication as to the sentiment towards higher gold and silver prices. Ahead of that pinnacle of retail excess, Black Friday, let’s take a look at how holidays may impact the fourth quarter for precious metals.

 
Past performance is not indicative of future results.
***chart courtesy Gecko Software’s Track n’ Trade Pro

Demand in the Third Quarter of 2010

According to the latest World Gold Council release, the outlook for gold demand through the end of the year will remain strong. They attribute at least part of this forecast to the same feature analysts have been looking at for the last few years – demand from India and China. In previous reports, this strong growth in Asia was noted as a significant contributing factor. The growing middle class has built up enough of an income to be able to look at bigger ticket items. They appeared to be eager to flaunt their disposable income, fueling greater consumption on jewelry and investment fronts. India’s conspicuous demand during religious festivals and the so-called wedding season always features highlights that bullion investors look for.

In a nutshell, there are key festivals in India, such as Diwali, when celebrants purchase gold and silver, often as gifts. Weddings in India are also high points for gold jewelry purchases. Just like in the United States, there is a particular “season” for tying the knot in India. It isn’t unusual for a bride’s social status to be measured in the kilograms of gold she wears on her special day. A global recession and high metal prices might not have deterred families from their purchases. Instead, other luxury gifts for the couple could have been cut in favor of buying gold. (1)

Demand and import numbers can be tell-tale signals. Gold importers in India will often offer up sound bites for news stories when prices are so high that they might trigger a slowdown in jewelry purchases. However, calling a top in precious metals prices the last several months has proven difficult. The latest news stories suggest that demand during the marriage season has been strong. Gold and silver purchases have allegedly seen “heavy buying” even through this latest round of firm higher prices. (2)
 
In the western world, this week marks the official kick-off of the holiday shopping season. The impact this might have on precious metals markets may be two-fold. First, the signal that the markets will probably look for is the force of consumer demand for retail goods of all kinds. The continuing issues in the housing and employment markets might dampen some of the enthusiasm for shopping. However, it is probable that the year-on-year interest in holiday giving will have picked up as consumers adjust to the economic situation. Uncertainty and fear were likely strong backbones for the lack of spending seen in recent years. At this point, everyone knows recovery will be slow in coming, so the average consumer could be feeling better prepared and holding on less fiercely to their savings.

Second, there has been continued interest in bullion investments, including physical sales. According to the World Gold Council, physical bar hoarding is among the growing legs of investment demand for precious metals. Silver bullion in the form of American Eagle coins has seen another record year for sales. Sales from the US Mint have gained 223 percent in the last five years. Recent statements from various mints point to gains in demand. The Royal Canadian Mint saw a 50 percent gain in silver bullion coin sales. Australia’s Perth Mint is also seeing upside to the sales of silver. This kind of interest on the demand side doesn’t seem to be ebbing with fresh highs.

Summary

The World Gold Council anticipates that jewelry market demand for gold will exceed 2009. Key markets seem to be resilient. Industrial demand has seen gains, returning to “pre-crisis levels” and increasing 13 percent in the third quarter of 2010 versus the same time last year. Domestic consumption and purchases by enthusiastic consumers could boost both of these numbers to close out the year. If high-end electronics and other consumer goods see buyers build steam ahead of Christmas, the industrial consumption for gold, and silver for that matter, will receive another potential boon.  Physical demand from the investment sector could benefit from the spirit of giving. If mints across the globe have seen coin purchases pick up pace, it seems fair to imagine that gift purchases could be rolled into the demand numbers.

Fear and uncertainty may have been mostly painted out of the picture. However, there appears to be a potential return of the depression-minded approach to savings. Even though a recovery may be slowly approaching, sitting just over the horizon on the economic front, investors don’t seem to be rushing back into traditional investments. The so-called havens like precious metals could be the gift that keeps on giving through the final quarter of this year. 

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1 http://www.emirates247.com/news/emirates/is-gold-playing-spoilsport-with-indian-weddings-2010-11-18-1.318289
2 http://www.dnaindia.com/money/report_gold-silver-hit-new-highs-on-seasonal-demand-global-cues_1471378


Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.