Wednesday, 26 September 2012

Monthly Trends in Gold - September and November Best Months To Own Gold

This is an old post from GoldCore dated September 4, 2012. I decided to share it because it gives a fantastic breakdown of the seasonal and monthly behavior of the price of gold. It has some fantastic, straight-forward and illumniating graphs and charts backing up its claims.

The original entry can be viewed here
Today’s AM fix was USD 1,691.50, EUR 1,342.25, and GBP 1,067.44 per ounce.
Yesterday’s AM fix was USD 1,686.00, EUR 1,341.72 and GBP 1,061.65 per ounce.

Silver is trading at $32.06/oz, €25.56/oz and £20.27/oz. Platinum is trading at $1,557.00/oz, palladium at $630.40/oz and rhodium at $1,025/oz.
Yesterday the markets were closed in USA for a national holiday. Gold’s PM fix yesterday in London was USD 1,691.50, EUR 1,345.45, and GBP 1,065.176 per ounce.
Gold inched up to its highest level in 5 months after poor manufacturing data from across the globe increased speculation that central banks will again vainly employ quantitative easing measures in order to prevent recessions and or depressions.
The heightened scepticism shown towards precious metals in recent months is slowly giving way to more positive sentiment and investors are diversifying into gold and the much smaller silver market to hedge against inflation and currency risks.
Hopes are high that Mario Draghi’s speech on Thursday at the ECB’s policy meeting will help solve the 3 year old debt crisis facing the euro currency bloc. These hopes are likely to again be dashed and investors are best served ignoring the central banks and bankers siren call which will again lead to a false sense of security. 
Moody's Investors Service has downgraded its outlook in Europe from Aaa rating to a negative warning it may downgrade the entire region if it cut’s its rating on the EU’s 4 financiers: UK, France, Germany and The Netherlands.
This will happen – it is only a matter of time before all AAA rated government debt is downgraded as contagion deepens.
Cross Currency Table – (Bloomberg)
The increasingly positive investor sentiment towards gold is seen in the gold ETF’s growing to a record high of 71.729 million ounces on Friday.  August inflows were 1.8 million ounces, up 3% and the biggest monthly rise since November.
Price data on gold in recent years, from 2000 to 2011 (see chart above), and over the long term, from 1975 to 2011 (see chart above), shows that September and November are the best months to own gold. 
The summer months normally see seasonal weakness and it is thus a good time to buy on the seasonal dip. Gold’s traditional period of strength is from late August into the winter and early spring and the traditional March dip.
Gold's Seasonality Chart (5 Years) - Bloomberg
Gold’s seasonality is seen in the above charts which show how March, June and October are gold’s weakest months with actual losses being incurred on average in these months.
Buying gold during the so-called summer doldrums has been a winning trade for most of the last 34 years. This is especially the case in the last eight years as gold averaged a gain of nearly 14% in just six months after the summer low.
We tend to advise a buy and hold strategy for the majority of clients.
For those who have a bit more of a risk appetite, an interesting strategy would be to buy at the start of September, sell at end of September and then buy back in on October 31st. 
This is obviously more risky as one will incur extra costs and risk the possibility of missing out on capital gains in October.
We caution that the monthly strength of gold in September and November while proven is not guaranteed and price falls in these months are also possible.
We also caution that a core position should always be held in gold in order to protect against the risk of currency devaluation or a systemic event.

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