One reason for gold's depressed price in July was the normal seasonal cycle of gold jewelry fabrication demand. June and July have historically been weak months for gold, while August marks the beginning of gold's strongest season, which runs through November.

In the last five years, gold has risen each August by an average 5.6 percent, led by a $185 gain (11.4 percent) in August 2011. Gold also rose by more than 6 percent in August 2010 and 2013. So gold is on a winning streak in the month of August, and for the remaining months of the year, mostly due to the need for jewelry fabrication for the major gift-giving holidays around the world: Ramadan in Muslim lands, the Diwali season in India, Christmas in the Wes and then the Chinese New Year, followed by Valentine's Day.

Central Banks (Particularly in the Old Soviet Union) Keep Buying More Gold

Russia's central bank bought another 300,000 ounces of gold in July, bringing their four-month total (April through July) purchases to 2 million ounces and their total holdings to 35.5 million ounces. These purchases are no doubt related to the Ukrainian conflict and the resulting sanctions, which tend to punish or prohibit any foreign exchange by Russia denominated in U.S. dollars and most other currencies.

In mid-August, the World Gold Council (WGC) came out with their definitive review of gold demand last quarter. They said that in the second quarter, the world's central banks bought 117.8 metric tons of gold, which amounts to 28 percent more than the 92.1 metric tons that central banks bought in the same quarter in 2013. The WGC credits this increase to "ongoing instability and uncertainty" that "reinforce the requirement for appropriate risk management by central banks through holding gold reserves for asset diversification."

In the second quarter, more than half of the central bank purchases came from the former Soviet Union — Russia bought 54 metric tons, Kazakhstan added 7 metric tons and Tajikistan bought 3 metric tons. Those three former Soviet states accounted for nearly 55 percent of all central bank gold purchases in the last quarter.

About the Author: Mike Fuljenz
Mike Fuljenz is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the NLG award-winning Michael Fuljenz Metals Market Weekly Report.