The truth behind the popular adage markets "sell in may".

Sharp last week price falls were a reminder that the summer can be a difficult time for investors Photo: AP

Not surprising that after Glencore, trader more products of the world, publishes his prospectus of the oil price, silver, copper, cotton, and many other raw fell.

And a breakdown of what it was. The price of Tin fell more FP7 last Thursday. Silver, which has soared on the coat tails of gold, has lost about a quarter of its value in a stark reminder that commodity prices retreats can be you fast. The price of oil has suffered its largest fall of ever day in dollar terms.

There are many good reasons why commodities should have marked a pause to breathe. Price of entry are self-correcting to some extent, so should be expected that rising energy, metals and food in the last months would result in sales of gasoline falls to the United Stateslower than expected GDP in the first quarter, both sides of the Atlantic, worse that he feared figures without employment and oil stocks higher.

In the emerging world, which is the main source of global growth, rising inflation triggered a monetary tightening cycle which will inevitably be retain developing economies. And that begins to appear at the doors of the German plant, where the levels are lower than expected.

Your emollient President of the European Central Bank, Jean-Claude Trichet on interest rates Europe is contributing to (although it back-pedalled a little Friday). A falling dollar makes prices more expensive at the nonamericans, so it often raises prices lower.

The indiscriminate nature of the price falls also points to a generalised speculative foam blowing. With near record levels of optimism on the raw materials markets, liquidation of a pretty crowded trade was on the cards.

Despite fluctuations of this week, I think that the structural case for commodities remains strong. Share of world consumption of energy in China should increase of 10pc there is ten years to 25pc in 10 years. We are in the midst of a fundamental change in the balance between supply and demand for products which conceals the most cyclical factors at play last week.

That said, the trade-off between risk and reward continuous gets progressively less favourable plu the redevelopment in the price of raw materials. There is little doubt that 2003 was best time for sowing on raw that 2011, even if high real may be months or even years of absence.

Sharp last week price falls were, however, a reminder that the summer may be a moment difficult for investors, although as difficult as the popular adage "sell in May and disappear" could suggest. In a moment to idle last week, I decided to take in looking at the numbers behind this.

I did so by monitoring the performance of the FTSE 100 in the 1920s, dividing each year in May to September, summer period and an October to winter April. Overall, sell in May has worked to be a sensible strategy. Moving cash in the summer and to return to the market in winter could have paid during the period of 20 years by a significant amount. An investment of 100 books in the British market in 1991 would have pushed to £ 162 for a buy and hold Investor and £ 190 for someone following the sale in the method of May.

It is the theory.

In practice, I think that many investors could work. First, 10 20 summers saw the rise of the market (by up to 18pc in best year). Pass next to these gains would have been extremely painful and the temptation to abandon huge strategy. Second, the transactional cost of moving the market twice a year would have excluded a large part of all the benefits. Finally, the figures are strongly biased by the bearish market 2000-2003, in which most of the damage happened during the summers of 2001 and 2002. Strip the out and during periods of the approach only worked.

Purchase and sale in the season and with a giant as an indicator of otherwise market flotation are superficially attractive approaches, but in most cases, reality is messier than theory. Sometimes it works and sometimes it doesn't.

tomrstevenson@fil.com

Tom Stevenson is a Director of Fidelity International investment. The views are his own. Twitter@tomstevenson63.

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What is behind the Klondike gold rush 2010?

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Less than a month after Marshall's find and a few hundred miles further south, a defeated Mexican government signed the Treaty of Guadalupe Hidalgo, ending a two-year war with its northern neighbour and ceding swathes of territory to the US.

"The discovery of gold was little short of a revolution and came as California became American," explains Malcolm Rohrbough, author of Days of Gold: The Californian Gold Rush and the American Nation. "People were celebrating."

The yellow metal had of course dazzled many civilizations before, and from the middle of the 19th century added America to that list.

It has bewitched the country ever since and never more so than in the three years since the financial crisis erupted.

And as gold closes in on a 10th straight year of gains, a debate is raging across the country on whether the longest rally since at least 1920 can last.

The price has moved at a pace that would have left even the most ardent of the early diggers breathless. It is up 27pc this year and hit a record high of $1,424 an ounce early in November. Its current US renaissance isn't one that can just be measured on charts, either.

Officials have added a sixth weekly tour of the New York Federal Reserve's cavernous gold vaults, which sit in the heart of Wall Street and are home to about a quarter of the world's gold. This year's tours have been sold out for weeks.

A few blocks further south, near the very tip of Manhattan, business has been brisk at Manfra, Tordella & Brookes (MTB), one of the eight companies in the US authorised to sell the gold and silver coins produced by the US Mint.

"It's always been a profitable business but the last couple of years have been very profitable," Mike Kramer, MTB's president, explains after a day's selling. "People do of course take profits at these levels, but are you going to put that in the bank? People are reinvesting in gold."

Back in California, the Gold Prospectors Association of America, which organises gold hunts across the country, has seen its membership double to 70,000 in the past three years.

For Americans, though, the metal's latest dizzying arc upwards carries a sting in its tail.

Its allure seems to deepen with each new warning that, like an increasingly infirm and frail pensioner, the country's greatest days are behind it.

The prophecies come in all flavours, including those that recommend hunkering down with some bullion, water and provisions to prepare for the impending storm. It's true that gold stirs up fervour like little else, no matter where you live.

"Nothing arouses such passion," says Marcus Grubb, managing director of investment and research at the World Gold Council (WGC), the market's trade body. "Nobody gets this passionate about Japanese government bonds or Brazilian equities."

Few voice a vision of America's troubled future more forcefully or more controversially than Glenn Beck, a one-time radio disc jockey and now Tea Party champion and influential presenter on the Fox News Channel. His prescription for the country? It's a simple one: "God, gold and guns."

"If you've been watching for any length of time and still haven't looked into buying gold, what's wrong with you?" he asks on his website. Beck's also a spokesman for Goldline, a California-based company that sells bullion and coins, a role that's drawn the ire of his political opponents.

Beck may be far removed from Wall Street but some of America's best-known hedge funds are also buying into gold's rally. John Paulson, who scooped a $3bn (£1.9bn) fortune betting on the collapse of the US housing market, is the biggest investor in the SPDR Gold Trust, a $57bn exchange traded fund backed by bullion, according to a filing last month with the Securities and Exchange Commission.

Soros Fund Management listed two gold miners – Nova Gold Resources and Kinross Gold – as two of the fund's top 10 holdings, a similar filing showed.

"We've got the gold bugs who have always believed that paper currencies will fail," said Richard Sylla, a professor of financial history at New York University, who recently heard Paulson tell an audience that the gold price could double over the next decade. "But you've also got investors like Paulson who are genuinely worried about inflation."

2010 is the first year in three decades that gold demand from investors has outstripped that from the Indian-dominated jewellery trade, according to GFMS, a metals research group.

On Wall Street, most say there's enough fear to go round, at least for 2011, to keep gold on the up. Fear that the Federal Reserve's latest $600bn of quantitative easing (QE) – or printing money – will damage the dollar and unleash inflation. Fear that the Fed's QE will fail, letting the deflation genie out of the bottle. Fear that the eurozone will implode. Or just fear of the unknown.

"You've got such a bullish environment right now," says Michael Widmer, an analyst at Bank of America Merrill Lynch who has been covering the gold market for a decade. "Next year, we're good for the gold price."

He expects prices to reach $1,500 an ounce, while his counterparts at Société Générale are predicting $1,485. Goldman Sachs is among the most bullish and expects to see gold change hands for $1,750 in 2012. But that's the peak, says Goldman, which doesn't see Armageddon looming on America's horizon. Instead, the bank last week ratcheted up its forecasts for US gross domestic product in 2011 and 2012.

Those with longer memories know that gold doesn't always shine as brightly as it has done over the last decade. After soaring in 1980 to $850 an ounce, prices plunged to below $300 as Paul Volcker, then chairman of the Federal Reserve, aggressively lifted interest rates to fight inflation.

"We don't think the decline will be as violent as in the early 1980s," says David Greely, who covers the market for Goldman. "But at these levels, gold is a tactical trade rather than a long-term investment."

Even gold's loudest cheerleaders admit that a robust economic recovery and rising interest rates would mean thinner oxygen for the metal at these levels. Gold, after all, provides no dividend, which poses an investor few problems when real interest rates are negative.

If fears over the global economy ease, "would that be a dreadfully bad environment for gold?" asks Grubb of the WGC. "We still think you'll see higher gold weightings in portfolios because people won't forget this crisis."

This, then, isn't gold as an asset you scramble to buy when the world implodes, or, as Goldman argues, something you trade tactically, but something a fund manager owns on a permanent basis in case the world does unravel. The WGC says its study shows portfolio's with 3pc and 5pc in gold offer better returns.

Those who reject the view that gold is poised for a plunge as giddy as its ascent also point to the opening up of the gold market in recent years though Exchange Traded Funds (ETFs), which offer investors exposure to bullion through buying shares in the fund.

"If you wanted to buy gold before ETFs it was pretty arduous," says William Rhind, head of US sales and marketing at ETF Securities, a UK company that was the first to develop an ETF backed by gold in 2003.

And gold is not getting any cheaper to get out of the ground. Production costs are currently running at about $450 an ounce compared with $180 an ounce a decade ago. That may be why many foreign central banks have decided to store much of their reserves in the secure vault at the New York Fed, where staff have to wear $500 metal shoes to protect their feet should a bar slip.

America's reserves are housed at the Fort Knox military base in Kentucky. These central banks could also play a key role in buttressing the gold price should Western economies roar back to life, as they seek to diversify some of their reserves out of dollars. India, Sri Lanka, Mauritius and Russia were all buyers last year, and the metals team at Société Générale expects that central banks will be net buyers next year.

Then there's China. Already the world's biggest producer, the country's gold imports in the first 10 months of this year were almost five times higher than for the whole of last year, Shanghai's Gold Exchange said last week. China National Gold Group, owner of the biggest mine, saw sales of gold bars soar 40pc in the first half of the year as inflation threatens to accelerate.

"You've moved from the [Chinese] government forbidding the hoarding of gold to incentivising people to buy it," says Widmer of Bank of America Merrill Lynch.

Away from the debate about gold's future that's raging in financial capitals, Dominic Ricci, the director of operations at the Gold Prospectors Association of America, expects his membership to hold up whatever happens to the price.

A day's prospecting, he says, is more about the camaraderie than the money. "Finding a nugget is a bit like going to Vegas and winning big. How often does that happen?" he asks.

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