It's a basic economic principle that when all hell breaks
loose in the world, investors rush to gold.
There's a basic reason for this flight to safe assets: When you
buy gold, you own an irreplaceable, finite resource that has been
humanity's universal medium of value for thousands of years.
I see headlines every day touting gold as a necessary part of any
portfolio. Many of those headlines suggest the recent global
turmoil in Europe and the Middle East could have a big upside
But I am not here to tell you what everyone else is saying. I
take pride in providing fundamental reasoning behind solid
investment decisions -- not just reactionary analysis. My goal is
to recognize a trend as its beginning rather than reporting on
the trend that you just missed.
With that in mind, I've identified a ripe opportunity in the gold
market that looks very attractive.
Amid escalation of global conflict and growing economic
gold is cheaper than it was three years ago.
But that could be changing. While the price of gold has fallen to
just above $1,300 an ounce, we're heading into a seasonally
strong demand period for gold.
This seasonal demand is driven by the retail stocking cycle as
jewelry stores gear up for the holidays. But an even more
significant driver is the Indian wedding season, where gold is a
With India being the world's second-largest consumer of gold
after China, any pickup in demand can greatly influence gold
And the demand is there. In a recent statement, India's Commerce
Ministry said the country imported $3.12 billion worth of gold in
up more than 60% from June 2013.
Though import restrictions have been in place for the past two
years, part of the reason for India's jump in gold imports is a
recent easing of restrictive policies. Many experts think that
policy will continue to ease as Indians continue to pay a premium
So although the buying pattern of gold is completely out of my
hands, what is in my hands is an interesting gold investing trend
I've found. Whether history repeats itself is up for debate. But
if you've found a cyclical move that has proven itself time and
time again... the risk/reward is pretty compelling.
I chose two time periods I believe benefit most from this
seasonal buying pattern of gold. To show you, let's look at the
performance of an exchange traded fund that tracks the price of
SPDR Gold Shares (NYSE:
, for reference.
Over each of the past five years, if you had bought GLD on the
first trading day in August and sold the first trading day of
you would have averaged a 6.4% return on your invested
capital (as you can see in the first row of the table
In the second row of the table, you can see that if you had
bought gold on the first trading day in August, held it for four
months, and sold it on the first trading day of December,
your average historical return would be almost 10% over a
While we're a few trading days into the month, GLD is only up 1%
-- and the opportunity is still there to capture some potential
Risks to Consider:
Gold is a volatile commodity, and its price is influenced by
a number of factors. Geopolitical events, increasing
import/export taxes, and general market weakness could push gold
Action To Take -->
If you'd like to approach this as a trade, to specifically take
advantage of this seasonal pattern - a great way to do so is
through the GLD ETF I mentioned. Because you can buy and sell it
just like a stock, it's easier for the individual investor to buy
shares of GLD than physical gold.
In terms of risk/reward, I don't see too much of a downside
here. Even if the timetable doesn't play out exactly as planned
-- in the end you still get to buy shares of a physical gold ETF
at one of its lowest prices in three years.
If these potential gains from gold have you excited,
you'll want to see the research my colleague Dave Forest has put
It turns out that China -- the largest consumer of gold -- has
been stockpiling the precious metal at unprecedented rates... and
it's not being reported. That's why we've put together a special
report detailing exactly how our expert analyst's
boots-on-the-ground approach can give early investors a jump on
gold stocks that could return up to 218% in the next 12 months.
You can learn the details of these opportunities by
following this link