If you listen closely, you’ll hear gold investors whispering that “it’s an ill wind that blows no good.” That’s because, while September may be the worst month of the calendar for stocks, it’s the best month for gold.
Since it began trading freely in the U.S. in the early 1970s, gold bullion has produced an average gain of 2.1% in September. The comparable monthly average for all non-September months is 0.6%. (See table below)
This difference is significant at the 90% confidence level that some statisticians use when determining if a pattern is real — though not at the more stringent 95% confidence level.
To the extent the future will be like the past, therefore, September may finally bring some good news to long-beleaguered gold bugs. You may recall that I wrote about gold’s monthly seasonal patterns last May, pointing out that gold’s seasonal tendencies would be negative through the end of August. Since that column was written, gold has fallen by about 10%.
To be sure, as I wrote recently when discussing the stock market’s negative September seasonalities, statistics alone are not a sufficient reason to bet on a pattern’s persisting. Another prerequisite is that there exist a plausible theory for why the statistical pattern should exist in the first place.
Unlike the situation for stocks’ September seasonalities, there does appear to be a plausible explanation for gold’s September seasonality. Three, in fact.
I say this on the basis of a study by Dirk Baur, a professor of accounting and finance at the University of Western Australia business school. He discussed three possible explanations for what he termed gold’s autumn effect: “Hedging demand by investors in anticipation of the ‘Halloween effect’ in the stock market; wedding season gold jewelry demand in India, and negative investor sentiment due to shorter daylight time.”
A couple of crucial qualifications are in order. First, Baur also found that gold’s returns are more volatile in the autumn than in other seasons of the year. So on a risk-adjusted basis it may simply be that gold’s higher autumn returns are compensation for the additional volatility.
Second, these results are based on averages, and not every September is positive for gold. Last year, gold bullion lost 2.2%. So even if you believe the future will be like the past, there’s no guarantee that gold will do well this coming month.
Still, even with these qualifications, many gold investors are no doubt relieved that the seasonal winds are finally blowing in a more positive direction.
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