You may have heard that gold rises seasonally from the middle of the year.
The background to this is the demand for jewelry. Around 50% of current gold production flows into jewelry production. This has a considerable influence on the price of gold. The Indian wedding season in autumn, the Christmas season and the Chinese New Year increase the demand for gold for jewelry production, with purchases by jewelers taking place in the run-up to the respective festivities. As a result, the price of gold tends to rise from summer onwards, which characterizes the typical seasonal pattern of gold.
For you as an investor, the practical question is when and how exactly the gold price will develop over the course of the year.
A closer look at the annual seasonality of gold
Take a look at the seasonal chart of gold below. In contrast to conventional charts, a seasonal chart shows the average trend over many years, depending on the time of year.
For this seasonal gold chart, the mean values were formed from the price changes over the past 50 years. The time of year is shown on the horizontal axis, and the price information is shown on the vertical axis. The seasonal chart allows you to recognize the typical seasonal course of the gold price at a glance.
Gold price in US dollars, seasonal trend, calculated over 50 years
Gold rises seasonally from the middle of the year. Source: Seasonax
As you can see, gold typically rises in the second half of the year. To be more precise, the seasonal rise begins on July 6. Until then, the gold price had not yielded an average return for investors in recent years. When looking at the results, bear in mind that there have been good times for gold over the past 50 years (such as the current period since 2018), and bad times (such as the period from 1980 to 2001).
From July 6 to the seasonal high on February 21 of the following year, gold’s gains averaged 6.96% and 11.27% for the year. This is more than double the average annual gain of 5.18% over these 50 years.
Demand for jewelry clearly has a significant impact on the price of gold. It favors the second half of the year, more precisely the period from 6 July to 21 February of the following year. Gold rises seasonally during this period, which makes this phase the most attractive for investors. It makes sense for investors to buy gold before July 6.
How does gold behave around the turn of the month?
The traders among you may be wondering whether there are also short-term cycles in gold. I would like to introduce you to a pattern that occurs once a month, and therefore quite frequently: the typical trend in the gold price at the turn of the month.
The next chart shows you the average development of the gold price over the past five years around the first day of the month. The red line in the middle shows the closing price on the first day of the month; and to the left and right of the red line, you can see the average trend of the gold price 10 trading days before and after. You can thus see at a glance the trend of gold at the turn of the month.
Average gold price trend 10 trading days before and after the start of the month Gold rises exceptionally strongly around the turn of the month. Source: Seasonax
As you can see, gold rises particularly strongly at the turn of the month. In the two days marked, gold rose by an average of 0.70%, which corresponds to 119.87% for the year as a whole.
This is an exceptionally strong result. In just these two trading days around the turn of the month, gold achieved an average of more than two thirds of its total gain!
Use seasonality and cycles!
The outperformance of equities, commodities or other instruments in certain phases, such as gold in the second half of the year, or around the turn of the month, is quite astonishing.
You can easily take advantage of these positive phases for both long-term investing and short-term trading. Integration into existing trading approaches is generally easy. By combining positive return probabilities, you can easily increase your results.
Best regards,
Dimitri Speck
Founder and Chief Analyst of Seasonax
PS: Gold shines with good performance from the middle of the year!
