‘Tis the season to be golden


There is a wealth of reasons why prices of financial instruments might be affected during the year.

The most obvious example is for perishable commodities. For commodities such as wheat, rice and orange juice, there are periods of the year that are more crucial than others.
For example, in wheat, we usually see prices decline in the early part of the year as famers in the northern hemisphere sell their crop and prepare for the next planting.
As hopes grow for a solid crop, the price usually falls into the middle of the year.
However, after the harvest, in mid-August, prices often rise as the harvest disappoints.
So, we can clearly see there’s a real world influence on the markets. As supply increases, for example, after the harvest, prices fall.
On the other hand, several months after the harvest, with growing uncertainties about how the crop will perform, prices can often rise.

Time for gold
From this example, we can see there are plenty of reasons for the calendar to affect our trading.
In gold, there are several important seasonal influences.  Most obviously, gold tends to move in line with the cycle in equity markets.
Equity markets often experience losses in the middle of the year as investors in the northern hemisphere go on holidays. This is the reason you might hear the old saying “Sell in May and go away”. Equity markets are often weaker mid-year and stronger from September to April.
So, the major cycle in gold is to weaken during the northern hemisphere’s summer doldrums and push higher for the rest of the year.
Weddings, love and Diwali
But it’s not just the equity markets that influence the gold price.
As we lead into the end of the year, demand for jewellery really picks up.
As we all know, the major time for jewellery in the western world is Christmas and then Valentine’s Day.
Of course, it takes time to produce jewellery, so the majority of gold is bought in September and October.
Additionally, markets experience huge demand from India at this time of year. First of all, we have the Diwali festival of light which, along with fireworks, has gold as one of its centrepieces.
Immediately after Diwali, we have the Indian wedding season, another time that see a large amount of gold purchased. The wedding season continues until April.
And don’t forget China!
And, added to all of this, we have the Chinese New Year in February! By the time April rolls around, we’ve had weddings, Diwali, the Chinese New year and Valentine’s Day.
From there, it’s time for gold to take a pause until it picks back up again in September.
Of course, there’s a whole lot more to do with how gold moves than just seasonality, but it’s certainly an important part of the mix.


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