Is it time to buy gold? While everyone is looking for the answer to this question, the World Gold Council (WGC), which rarely comments on the best time to buy or sell gold, highlights September as one of the best times to buy the precious metal in its latest report. Cryptocoin. com, we have prepared for you the important points that WGC stated in its report.

WGC: September has historically been one of the strongest months for gold price

“September has historically been one of the strongest months for the gold price, and this could present an opportunity for investors as we enter the fourth quarter of the year,” WGC said in a report. Citing its analysis, WGC said that gold yielded positive returns throughout September with a confidence level of around 90%. The WGC report states that the two main drivers behind this momentum are strong physical demand and increased investment activity:

September’s price action is most likely due to the combination of the two trends. Strong demand period linked to Indian wedding season and other festivals in October and early November, and higher global investment activity after typically quieter summer months. For this reason, investors often used September as a suitable time to add gold to their portfolios.

“We wouldn’t be surprised to see an increase in gold price if real interest rates stay below -1%”

WGC sees a bullish trend for gold specifically for this September, citing the lack of price action in August alongside the sudden crash at the start of the month:

Real government bond yields, via the US 10-year TIPS yield, hit all-time lows in early August, which is normally a positive for gold as the opportunity cost rises. Despite the very strong correlation in recent years, as in August, we saw that the gold price lagged behind this movement from time to time. This was probably a product of a stronger US dollar. In the report, we would not be surprised to see an increase in the price of gold, especially if real interest rates remain below -1% due to weaker month-end employment data.

WGC: Slight decline in gold price in August was primarily due to ETF exits

Despite all the volatility, the precious metal closed August down 0.6% month on month and 4% year on year. The report states that global financial markets were relatively quiet throughout the month, generally in August, with most exchanges rising at lower volumes.

The slight decline in gold price in August was primarily driven by momentum factors from the modestly high rates, along with ETF outflows and the rebound from the strong gold yield in July. Against the negative effects, the continuation of the decrease in interest rates in July. Despite the sudden slump on August 9, gold ended an otherwise smooth month resiliently sideways.

“The sudden collapse in the price of gold on August 9 came at a time when there was generally less liquidity in global markets. ”

One of the most popular questions on traders’ minds was the reason for the sudden crash on August 9, when gold fell 4% in just 15 minutes to just below $1,700 an ounce. WGC looked into the matter as follows, citing low liquidity and technical positioning as the main reasons behind the flash crash:

This happened at a time when there was generally less liquidity in global markets across all assets. There were some technical components that could create this quick sale. First, the technicians highlighted the recent ‘death cross’, where the 50-day Harekedollarsy average fell below the 200-day Harekedollary average, which is considered bearish. Second, the quick sell started some stop-losses, possibly around $1,700, which had a snowball effect causing additional selling.

Where does the principle of bullion as a store of value come from?

Amid all this, institutional investors are looking to gold this fall, with prominent voices emphasizing gold as a store of value, particularly John Paulson, chairman and portfolio manager of Paulson & Co, and Mark Mobius, founder of Mobius Capital Partners. WGC also made a parallel assessment to investors:

The principle of gold as a store of value is one of our core messages for investing in gold; We have seen the purchasing power of fiat currencies decline significantly in recent years, a trend that has been going on since the last century.

Source: Bloomberg, ICE Bencmark Administration, World Gold Council
As of December 2020. Relative value between gold price: LBMA Gold Price PM commodities: Blooomberg Commodity Index and major currencies since 2000. The value of commodities and currencies measured in ounces of gold and indexed at 100 in January 2000.

Why is gold on the radar of major institutional players, according to WGC?

According to WGC, which says high price pressures are already hurting consumers, inflation is why gold is on the radar of major institutional players:

There are some clearer examples of inflation that are less talked about. Shrinkflation, or the idea that you’re getting something for less for the same price (a nifty way to go up in price) has become more common. Often in the context of electronics, so-called hedonic (taste-based) adjustments, in which the price of goods is adjusted to reflect innovation (such as increased functionality or processing capacity), where the total amount spent by consumers remains the same or potentially increases. While inflation may be temporary in the eyes of central banks, consumers and investors may feel differently. This could lead to increased allocations of commodities that perform well in hyperinflationary environments such as real estate, TIPS and commodities such as gold.

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Michael Lewis


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