The price of gold fell more than $10 an ounce in Friday trading, following a smackdown early Wednesday morning when the price plunged nearly $30 an ounce. In short order, however, the metal ended up finishing November with a modest gain.
What once looked like a move of almost $100 an ounce higher this month has turned into a meager 0.4% gain based on the London PM Gold Fix via data from Kitco. The month goes into the record books as an underperforming November, as shown below.
Recall that November has, for decades, been one of the very best months of the year for the price of gold and, over the last 10 or 12 years, it's been the clear leader. But after a single trader placed a massive 24 tonne sell order for gold futures two days ago, the metal will end the week about $40 an ounce lower, giving up nearly all of its November gains.
Click to enlarge image.
Of course, a disappointing November can often lead to a very good December. That was the case back in 2007, when a decline of 0.8% during the second-to-last month of the year was followed by a 6.4% surge in December.
Back then, there was a private sector credit crisis bubbling up that would flower in 2008, in some ways similar to the public sector credit crisis that has been bubbling up for years. That is, ever since the private sector debt troubles were taken over by governments and central banks around the world. The final chapter on that ongoing transfer has yet to be written, and when it is, it will surely be positive for the price of gold.
December 2009 and 2011 were horrible periods for gold, down 7.5% and 12.3% percent, respectively. So, there are good precedents for the metal closing out the year with a whimper, not a bang. But December 2010 may be the best parallel for what lies ahead, since that month also saw a lame duck Congress in the U.S. wrangling over deficits, taxes, and stimulus spending -- all of which resulted in soaring precious metals prices and the last big move higher for related shares (yes, it's been a painful two years for gold stock owners).
Two years ago, Congress agreed to spend hundreds of billions more in borrowed money as the U.S. economy looked weak, and it seemed like a good idea to run up another $1 trillion deficit by extending tax cuts and stimulus spending. The price of gold rose almost 2% in December 2010, notching its fifth straight monthly advance before beginning a short correction in 2011.
This December is a tough call, given how unpredictable the folks in Washington are when it comes to making budget deals. However, as we learned last summer during the debt ceiling debate, all it takes is a credit downgrade warning or two (as happened on July 13, 2011) to send the U.S. dollar plunging and the gold price soaring. And then there's the Federal Reserve meeting on Dec. 11 and 12, which is likely to result in a central bank commitment to print $1 trillion in new money every year until such time that the economy recovers (and that may be a long time).
No, I wouldn't read too much into the weak finish gold turned in this month because there are many catalysts at the ready to push the price higher in December. Those contemplating investments in funds such as the SPDR Gold Shares ETF (GLD) might want to act in advance of these catalysts as we approach year-end.