Two forces--geopolitical risk and seasonal factors--have converged to make Gold a compelling buy for the next few weeks.
We witnessed the surge in gold following Trump’s “fire and fury” statement, triggering a war of words between the US and North Korea. The probability of an actual war with the rogue state is still uncertain, but it constitutes a real and present threat.
Most of you are aware of how the situation has been escalating during the last 48 hours. The US, according to Trump, is now “locked and loaded” to take action against North Korea, should it “act unwisely,” referring to the North Korea missile threat against Guam, a US territory.
In response earlier today, China, through its state-owned media, warned US President Trump that "If the U.S. and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so.”
Although a de-escalation of the situation is still possible, the winds are not blowing in that direction. And investors have made their opinions clear, with regard to the effect of this stand-off on their wealth and financial interests, by flocking to gold.
Converging upon this geopolitical powder keg are the seasonality factors that have historically pushed gold higher in the months of August and September. Gold demand in India has exhibited a consistent and cyclical surge during the summer months, partly due to the Indian wedding season. But current gold demand in Asia overall has increased several fold as imports to China have sharply risen over the last few years for purposes of trade and political maneuvering.
In the months of August and September, Gold has historically risen 65% of the time, making it one of the most profitable months of the year.
But if you were to scrub down to the weekly level, Week 33 (August 14 through August 20 for the current year) historically shows a 66% probability of gold prices rising with an average gain of 1.99%, and Week 35 (August 28 through September 3) historically exhibits a 65% probability of gold rising with an average gain of 2.38%!
Geopolitical and seasonal events have converged to create the perfect storm for gold to rise. Not only is gold a safe haven investment and smart hedge against financial risk, it is also a seasonally-driven asset. And the perfect seasonal time to buy gold is now.