These days, yellow metal gold has become the most popular choice for investors due to its recent upside movements. The fall in dollar value against major currencies, along with ambiguity over further upside in equity markets, is convincing investors to park their money in gold as a safe haven for buying. Regarding price movements in 2009, with the favorable fundamental situations, it has been trading northward so far. We know that a cocktail of factors (injection of stimulus packages, excessive printing of paper money, widening trade deficit, rising debt, gold mine supply at a historic low, buying by central banks, historic interest rate cuts, deteriorating US economy, shrinking trade activities etc.) are likely to keep gold in an uptrend going forward.

However, if we talk about the latest movements in gold, it is more seasonal. Seasonally, September is the best month for investors to invest. Over the past four decades, it has been giving the best return on month over month appreciation. Furthermore the chart below also depicts the same. Even festive demand gives underlying support to gold prices and fourth quarter bullishness in prices continue. Physical buying begins in India due to holiday and wedding demand and it continues through China‘s New Year celebration. Western economies participate in buying during Christmas. It has a “low season” too which runs from March to July. This pattern occurs even in secular bull markets.

Average Monthly Movements Of Gold On 22 Year Chart In COMEX

Despite mayhem in the world economy, which is undergoing the most severe recession after 1932, commodities have shown comparatively better performance than other asset classes due to their massive demand. We can’t say that demand for agricultural commodities is completely immune to the recession, but it is relatively immune to the recession compared to metals and energy and other products.

With the decline of around 20% to 40% in several commodities - eg. soybean, spices, sugar etc. in world production, commodities prices are moving higher in a significant way. However, the current rise in prices will encourage farmers to produce more for next season. This is evident from behavior in 2008 in the case of wheat and rice. Year 2008 will be remembered for the sky-scraping prices of wheat and rice, which encouraged framers to plant more for the year 2009.

Recession has become a buzzword. Everybody is losing confidence but it is well said that crisis generates opportunity and one should know how to turn crisis into opportunity. Commodities are the field which generated opportunity in every phase of the business cycle. In general, commodities tank after the market crashes or a recession occurs.

If we look back, occasionally it is evident that there are new peaks in prices after recessions. Two dimensions could be attributed to these higher prices after recessions. First, production cut due to lack of demand and liquidity, and secondly, various monetary steps to revive the economy, including interest rate cuts, relief packages, tax cuts etc.