One More Quiet Week

by Zubin Driver
September 01, 2009

Nearly a year since The Fall of '08 began, one more quiet week remains before participants return to their desks in earnest from summer mode. In many ways '09s return from summer is the reverse image of '08s. Hints of hope from the economy accompany price action that is edging up off bottom, as opposed to the terminal economic threats that colluded with the downward price slide of last summer, culminating in an autumn avalanche.

No one expects such a disaster this year, although many are calling for a correction, pointing to the fact that historically, September and October are often difficult months in the markets. For now, the 'recession's almost over, but recovery may be too tepid to avoid double-dip' narrative is in place; as participants return and volumes pick up, we will see how said narrative evolves.

Market action was quiet last week, with North American markets trading sideways. Asian markets, led by Shanghai, have been weaker than Western markets suddenly, which, given their leadership off the bottom since March, is noteworthy. In keeping with this recent development, Asian equities began this week on a soft note, which has led to a selloff in North America as well.

Out with the Old

Over the weekend, Japanese voters turned out the ruling Liberal Democratic Party by a huge majority of more than 300 out of 480 seats. The LDP has been in power for over 54 years, spending 11 months away from the reins in 1955. Internal dysfunction and the electorate's general disillusionment with the incumbents combined to overthrow the LDP in a vote for change. It will be interesting to see how a party that has never been in power handles its new responsibility. Japan is known to have been facing an increasingly difficult demographic situation, with an aging population, slowing birthrate, and economy that has been stagnant since peaking in the late '80s. It would appear from this vote that Japanese voters have reached a generational breaking point.

'Tis the Season?

The seasonal moment for gold is upon us. Most years other than last autumn (but even then, gold was the first asset to recover, other than the US dollar, which spiked as everything else collapsed), gold strengthens after a slack summer. Its upward wave usually peaks in March. One factor that observers point to is the Indian wedding season, which runs from September through December; the Indian population is the world's largest retail consumer of gold.

Current price action supports the notion that this fall could see gold breakout. It has been awhile in the making, as bullion has hovered between $915 - 960, consolidating somewhat quietly. Everyone has been waiting for the sustained breakout through $1000, though the chatter about it has died down a bit lately. Investors who are bullish of gold should be long their favourite gold names this fall.

Best regards,
Zubin

Zubin Driver
Investment Advisor
(W) 604 643-7608 / (F) 604 643-7606
Email: zubin_driver@canaccord.com

Canaccord Capital Corporation
Attention: Zubin Driver
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OFFICES IN MAJOR CENTRES ACROSS CANADA. MEMBER OF ALL CANADIAN STOCK EXCHANGES AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA. MEMBER CANADIAN INVESTOR PROTECTION FUND (CIPF).