Is There A Seasonality To Buying Gold?

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Is There A Seasonality To Buying Gold?

Economists and savvy investors know to watch markets and asset-based commodities for trends. This includes watching the price of gold for salient trends that might indicate a coming uptick or a potential downturn. One trend that can complicate matters is how seasonality might be able to affect the value of gold.

What Is Seasonality?

Seasonality is something that can be applied to a lot of different industries, occupations, and indeed whole sectors of the economy. The change of season plays a major role in the Northern Hemisphere with industries like agriculture and construction. It can even be a factor with something like for-profit educational institutions. Indeed, seasonality is even factored into the employment numbers, when it comes to using them as a barometer for the overall health of the United States economy as a whole.

As the name implies, seasonality tends to occur again and again during specific periods which are related to the actual season or a specific time of the time. Most of the time it is related to the general weather patterns of the time.

In northern climes, the ground freezes so hard in the winter that road restrictions and weight limits are put in place in the spring. This means that the heavy equipment used for road construction and many infrastructure projects either need to be moved during the winter when the ground is still rock hard, or they must wait until late spring when the ground as properly thawed, and the water has settled out.

Similar trends exist in agriculture in northern states, successful planting requires the soil to be in a specific temperature range. Then some crops are also frost-sensitive and cannot be planted until the average last frost date. Seasonality then reappears as a critical factor for planning the harvest and making sure that the goods harvested can safely make it to the appropriate market.

Seasonality In The Gold Market

Gold as well other precious metals like silver, platinum, and palladium exist on the world trade market. This means that things like the seasonality of the just the Northern Hemisphere don’t impact it as much as agriculture or construction that relies on heavy equipment. Yet if we look closer, there do seem to be some seasonality trends in the precious metals market.

In general, precious metals and the related stocks tend to perform well or poorly during specific parts of the year. Summer has a reputation for being a weak time for gold as farmers in India wait to see if the rains of the Monsoon will be good enough to bring in a bountiful harvest. Then again in the fall, which is typically the time in India when weddings are held the farmers draw out their profits from the harvest and spend them on gold.

Of course, this is just one single example of seasonality’s impact on gold prices. It’s not to say that Indian farmers are the be-all-end-all masters of the gold market. It merely demonstrated that seasonal patterns can have their own kind of impact on precious metal traders which means they can also have an influence on the choices made by investors.

Ultimately, understanding the potential sways of seasonality can help you identify the times of year when it is a good time to invest in gold or other precious metals. By the same token, it can also help you recognize when such a venture might not be as profitable.

Understanding Seasonal Analysis And Its Various Factors

On the face of it analyzing the influence of the seasons needs to go beyond the basic trends, you see on a profits and loss ratio at a certain time of year. It needs to include recurring phenomena, and some of them might not always coincide with the seasons as they pertain to weather.

One example to consider is Thanksgiving Day which is traditionally celebrated each year on the fourth Thursday in November. Yet the date itself changes from one year to the next. Thanksgiving and the following Friday is often seen as the start of the Holiday shopping season when retail stores throughout the United States and online merchants try to outdo each other in hopes of hitting record sales.

Seasonal influence of course also extends to the recurring influences that drive the price of precious metals including gold. Some economists and investors debate that there is at least one more factor is influencing prices which are linked to the influence of derivatives.

It’s worth bearing in mind that options and futures don’t necessarily expire on the same day each month. Yet they do expire month by month. This demonstrates how the expiration of derivatives doesn’t fully fit into the other seasonal patterns.

The Influence of Derivatives

Derivatives typically expire on different days within each month, or they might expire during a specific quarter or year. Due to this quirk in their mechanic, there is a need to adjust the basic seasonal pattern to include the influence of derivatives. In certain scenarios, it might be strong enough to make the price of gold and other precious metals drift away from the typical seasonal pattern.

The expiration of derivatives and other A-typical phenomena cannot be accurately factored in by using simple seasonality tools. A better way to think of it would be to factor in the expiration of derivatives into a seasonality-based investment strategy for gold or other precious metals. This would represent a more comprehensive view of the precious metals market in the short-term, while also helping you to make the most of future opportunities when they start to develop.

By staying abreast of seasonality trends, and factoring in derivative expirations, as well as other market phenomena, you can start to develop a more effective and broad-reaching investment strategy. Rebalancing your portfolio to include gold and precious metals, as well as the influence and other factors will take you beyond the opportunities seen by so-called savvy investors who have a nasty habit of lurching from one short cycle new item to the next.

By |2019-01-21T09:53:53+00:00January 19th, 2019|investing|0 Comments

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