Why is Gold deviating from seasonal trends?

Team Veye | 05-Nov-2018 Gold deviating

With stock indexes witnessing volatility and a major price correction, the precious metal may appear to have made a comeback.  And, it is historically proven that every time there is a market crash, Gold prices soar and the markets may have appeared to be heading in that direction but the ground reality is different from past trends this year.

Financial experts have always advised a small allocation towards gold as a hedge towards volatility and uncertainty. The overall trend in gold prices is possibly set towards an upward bias Gold as part of asset allocation does good when uncertainty increases. One should have both equity and gold in their portfolio, but in certain proportions which is in line with their goal. Ideally, gold or precious commodity should be between 5 to 10% of one's investment portfolio however it can vary depending on one's risk appetite and financial situation.

If you analyse the normal historical seasonal patterns in the gold market from Moore Research Center, Inc., buying Gold in Sep-Oct and holding it through Jan-Feb in the next calendar year has produced a profit in 13 of the past 15 years. And typically, these gains tend to be large. A minor deviation to this trend has been the delay in the Gold prices picking up this year and that's primarily because of high bond yields that have attracted a lot of investors. And, with markets being volatile, Gold stocks are a safe bet.

In short, have we entered the best time of year to capitalize on gold?

Well, not really. There’s more to the story this year and you must read this carefully.

The price of Gold has dropped $5 per ounce on news of stronger-than-expected US jobs growth last week, heading for the first weekly decline as world stock markets extended their bounce from October's slump. After new global gold demand data late last week stated the first 9 months of 2018 were the weakest since 2009 – totalling below 3,000 tonnes despite a rise in central-bank buying indicating that the balance of this quarter may prove a healthy turnaround. However, in the No.2 consumer nation India, with their biggest festival Diwali just a few days away, there is no improvement in demand. The retail buyers in India are not interested in making purchases at the current price level near 6-year highs in Rupee terms as demand around the Hindu festival calendar peaks. 

The Gold investors now appear to focus on macro events and are busy discussing about uncertainty in the air due to Tuesday’s midterm elections in the U.S. and Thursday’s U.S. central bank monetary policy meeting. If President Trump loses support and the US Dollar weakens, retail investment demand is likely to pick up, providing a more solid floor for prices, and potentially a tailwind. Though, the Federal Reserve’s monetary policy meeting is in prime focus as gold tries to hold significant support above the $1,230/ounce level, however, the midterm elections pose the biggest risk to the gold market because the Federal Reserve is not expected to raise interest rates until December, according to the analysts. 

Polls are suggesting that the midterm election results will divide the Congress with Democrats gaining control of the House and Republicans winning the Senate. And, this split in leadership will surely make “policy formulation/amendment agreements” very difficult. And, Gold is likely to benefit from this type of political environment. However, it would be wise to watch these developments closely through next week and then take a decision of investing in Gold – once considered an investor’s safe haven.  


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