Lear Capital: Will Gold Bail Out Christmas?

Dave EngstromAs reports begin to stream in, it appears the Christmas retail season is off to a fast start.  Some suggest this is a positive sign of things to come as, for many retailers, a strong holiday selling season could make the difference between earning a profit for the year or not.

However, caution is in order!  A strong start to the season could also be a signal that the beleaguered consumer is going to buy at a bargain or not buy at all.  One analyst suggested we could see a strong start, as consumers rush to take advantage of big discounts, followed by a long lull until just a few days before Christmas.  That’s when the credit cards come out in an effort to delay the pay date as long as possible.

With a real unemployment/underemployment number estimated to be closer to 16% than the reported 9%, one really has to question where the money could come from to bolster a strong retail season.  More than one analyst has attributed recent gold sales to an effort to offset losses in other investments.  We are near year-end, a time when many stock and investment transactions are tax motivated.  I may suggest another reason for selling gold at this time of year. 

The experts, in talking about gold, seem to forget that gold is up more than 21% on the year.  What better motivation for a an average gold investor to sell off a piece of gold in order to ensure a gift-laden Holiday season for the family.  According to a recent Gallup Poll, the average family plans to spend $712 this year on Christmas gifts.  More specifically, per the poll, "about one-quarter of Americans plan to spend at least $1,000 on gifts, another quarter say they will spend between $500 and $999, and about one-third will spend between $100 and $499. Very few plan to spend less than $100 while 14% are unsure."

These numbers illustrate how far an ounce of gold could go toward covering an entire season of gift buying, especially considering an ounce, which currently sells for more than $1700, when sold would produce about $360 of investment return over the last 11 months.  In this regard, gold may not only be bailing out losing portfolios, it could also be bailing out Christmas.

Considering these motivations for selling gold along with a general sentiment that gold prices have peaked, it’s a wonder the gold price is holding up as strong as it is.  It seems every ounce that comes on the market is being grabbed up quickly by those who do not trust the theory of our own recovery or Europe’s ability to solve its debt crisis. 

Lost in the Holiday commotion and forced selling of gold is the fact that central bank gold buying is skyrocketing.  China alone seems willing to buy every ounce put on the market.  Let’s not forget that dollar strength and the resultant downward price pressure on gold, is like a giant Christmas gift to foreign buyers who hold dollars in their reserves.  What better opportunity to off dollars than when the dollar is showing relative strength against just about every other major currency in the world.  Even today as the gold price dipped on negative news from Europe, we were reminded that the gold price, in Euro terms, went up.

It’s long been reported that China has begun to bail out of its dollar reserves.  Estimated now, to be near $3 trillion, China couldn’t ask for a better gold buying situation.  It may be the irony of all ironies.  We are selling gold for dollars to pay for our Christmas gifts while China thinks the real gift is the opportunity to get rid of more dollars to buy our gold.

Now that’s what I call a bailout.




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