Strong U.S. Dollar Weakens Gold Prices this September

By: Frank Holmes | Tue, Sep 9, 2014
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Last week I wrote about the historic correlation between the month of September and the strength of gold. Now it appears that this September might be shaping up as one not to remember but forget.

Based on data reaching back to 1969, gold rises 2.1 percent on average in September. Ten days into this year's month, however, the precious metal has lost 2.6 percent, slipping from $1,288 to $1,254.

Gold Price Slip to Three-Month Low Amid Strengthening US Dollar

As I pointed out last week, a dip such as this might be common in other months, but it's somewhat rare in September. In the last 20 years, there have been only five Septembers in which gold prices ended lower than they started at: 1996, 2000, 2006, 2011 and 2013. Although we remain optimistic, 2014 might see another such down September.


So What Gives?

September is statistically both the best month for gold and worst month for stocks. Though there isn't an absolute certainty that each September will be as equally kind to gold, decades' worth of data support this inverse relationship. Investors, aware of the probability, typically move some of their stock positions into gold.

Inverse Relationship Between Gold Bullion and Stocks is Most Dramatic in September

But another inverse relationship exists that also influences gold's performance: the relative strength of the U.S. dollar. When the dollar does well, many investors choose greenbacks rather than yellow metal as a reliable safe haven from volatility.

Inverse Relationship Between Gold ullion and the US Dollar

This month, the inversion has only intensified as the U.S.'s ISM Manufacturing Index for August rose to a three-year high of 59.0, strengthening the dollar. While a jump in the ISM index is a welcome event, commodities such as gold tend to take it on the chin.

Another factor weighing on the metal is the weakening euro, which statistically has the opposite effect. When the euro is down, so too is gold because dollar-denominated gold becomes more expensive for Europeans and other non-Americans. Recently the eurozone's currency hit 14-month lows against the dollar.

Again, even though this particular September has thus far fallen below expectations, we remain bullish on gold in our Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX). As I've frequently written about, the Love Trade is a reliable occurrence around this time of year that helps bolster the metal's performance.

And as always, we at U.S. Global Investors recommend a 10 percent weighting in gold: 5 percent in bullion, the other 5 percent in gold stocks, then rebalance every year.

Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.

 


 

Frank Holmes

Author: Frank Holmes

Frank E. Holmes
Chief Executive Officer
Chief Investment Officer
U.S. Global Investors

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company's funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper's top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper's top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of "The Goldwatcher: Demystifying Gold Investing."

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron's, The Financial Times and other publications.


Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

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