Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
Conditions seem to be right for a bump in gold prices in the coming weeks. Indian festival season is starting to get underway and this has traditionally led to a jump in the price of physical gold. In addition, the U.S. dollar is still feeling the effects of the government shutdown and has traded poorly ever since.
Indian festival season has traditionally had a very positive effect on gold prices. In fact, the price increase has been so consistent that Bank of America Merrill Lynch analysts sent a note to their clients stating, “Looking ahead, history would indicate that November is usually a strong month (with an average monthly gain of 3.8% in November) for gold prices thanks to the wedding and festival season in India. Thus we believe that gold bullion could mount a modest rally to the $1,350 – $1,400/oz range over the next month or so.” Gold is currently trading at $1,341 an ounce.
Morgan Stanley analyst Paretosh Misra also sent a note to investors agreeing with BAML’s analysis. In the note she said, “Indian festival season could provide a lift to gold. Traditionally, the Diwali festival (specifically, Dhanteras, the two days before Diwali) is the biggest gold buying period of the year in India. In the last 10 years, gold has risen an average of 2.5% in the one month around Diwali.”
An increase in gold prices could also be aided by the post-shutdown drop in the value of the U.S. dollar. In an interview with CNBC, Jens Nordvig at Nomura said, “The dollar has traded very poorly on the back of the debt ceiling resolution against the Japanese yen, the euro, and the Australian dollar.”
According to a CNBC poll, nearly 89 percent of financial industry respondents believe that the U.S. dollar will slide this week. The main risk event for the dollar will be this week’s delayed September jobs report numbers, scheduled for release on Tuesday.
Greg Gibbs, senior currency strategist at RBS, has said, “It will take strong payrolls [reading] to put the dollar square. It’s hard to over-complicate this one…all risks to the downside.”
In other words, the jobs report is not expected to be positive enough to boost the dollar, which could lead to, at the very least, a short-term increase in gold prices. Factor in the annual Indian festival season and its traditional boost to gold and you have a couple major reasons to be bullish on bullion in the month of November.