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Gold’s performance may worsen in October, history shows
By Mark Hulbert

* September 30, 2016

It tends to be one of the weakest months of the year



CHAPEL HILL, N.C. (MarketWatch) — Gold’s seasonal tendencies shift as September gives way to October.

In contrast to September, which historically is one of the best months for gold, October is one of the worst.

The accompanying chart plots the historical data. Since 1973, London gold bullion has produced an average loss of 0.1% in October, in contrast to an average gain of 0.8% in all other months.

September, by the way, sports an average monthly gain of 2.2%. That means there’s a 2.3 percentage point drop in average monthly returns from September to October.


One reason to pay attention to these seasonal tendencies: October’s poor showing has been consistent across the decades, as you can see from the table below.

Period	       October’s performance rank relative to other months 
 1980s	                                                       9th 
 1990s	                                                      12th 
 Since 2000	                                              11th

Yet another source of concern: In September of this year, gold has risen at barely half the historical average rate, with a month-to-date gain of only 1.2% (through Sept. 29). If strongly positive seasonal tendencies were unable to cause gold to produce even an average return in September, what might happen in October when those seasonal tendencies turn strongly negative?

Anyway, is there a plausible explanation for why gold is so weak in October?

The only theory I’ve come across is from Ned Davis Research, a quantitative-research firm, several years ago. John LaForge, at that time a commodity strategist for the firm, identified the likely culprit to be a seasonal cycle in Indian jewelry demand.

That might strike you as far-fetched. But, in fact, jewelry demand is one of the biggest sources of global demand for gold, and India, in turn, is one of the biggest sources of that demand.

The seasonal cycle to which LaForge was referring has to do with the festival of Diwali, one of the most important events of the Hindu calendar. It’s a five-day festival that begins at some point between mid-October and mid-November, when many Indian weddings are scheduled.

LaForge found that gold typically forms a tradable low around the start of Diwali, which this year falls on Oct. 30. Perhaps, therefore, we should be looking for some sort of tradeable low for gold in the days immediately prior to that date.

http://www.marketwatch.com/story/golds-performance-may-worsen-in-october-history-shows-2016-09-30?siteid=rss&utm_source=tf

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