The Seasonality of Gold


"The slew of completed and proposed offerings from precious metals miners over the past few weeks has been nothing short of impressive."

The deluge of offerings is no doubt the result of a window in the market driven by the rise in the gold price, and subsequent lift in equity prices: since October 31, gold is up 25% in U.S. dollar terms (28% in Canadian dollars) and the S&P/TSX Gold Index has jumped 70%.

Yet it's also possible that senior management at these firms have their eye on seasonal trends in the gold price and the potential for such trends to close the financing window in the near future. For example, since August 1971 when Nixon closed the gold window (i.e.., ended the direct convertibility of U.S. dollars to gold), the highest monthly average returns for gold have occurred from September though February (October being an exception, posting the lowest average return). The same relationship has held up over the past five years as well (up 3.9% in September 5.6% in November, 5.2% in December, 4.8% in January and 1.5% in February; the remaining months were either up marginally or posted negative average returns).

Similar results are present for gold equities. Over the past five years the strongest monthly average returns (in U.S. dollars) for the Amex Gold Bugs Index (HUI) were September (4.5%), November (7.7%), December (8.7%) and January (5.4%). The same relationship can be seen in monthly average returns since the HUI was created in 1994.

This apparent seasonality is present, though somewhat less pronounced compared to gold and the HUI Index, in the average monthly returns (in Canadian dollars) for the S&P/TSX Gold Index over the past five years the strongest months on average were August (7.2%), November (9.8%), December (11.3%) and January (5.3%).

Various reasons have been put forward to explain this apparent seasonality in the gold price. The most cited tend to center on jewelry purchases in India, the world's largest consumer of gold, prior to various festivals. These include the wedding season(s) (November-December and mid-January to May), Diwali (occurring either in October or November) and Akshaya Tritiya (April or May), reportedly the single busiest day for gold jewelry purchases. Purchases prior to Christmas in North American and Europe, as well as Chinese New Year, have also been cited by analysts as explanations for the average bump in gold prices late in the calendar year.

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