It’s a phenomenon that’s perplexed economists who consider markets ought to behave extra effectively, and it isn’t restricted to gold: September can be generally the worst month for US shares, with common declines of greater than 1.5% within the S&P 500 over the previous decade.
The dynamic is way from dependable — gold has really risen in September over a three-decade horizon — however one clarification for the latest weak spot is that merchants are shopping for bullion to take a defensive place over the more and more turbulent summer time months, earlier than promoting on their return to the workplace in September.
“Earlier than you go on trip and get away out of your screens, you wish to hedge the danger that you’ve got out there, and a technique you are able to do that’s to purchase gold,” stated Boris Mikanikrezai, an analyst at FastMarkets.
Lecturers have proven that some buyers do “swap off” over the summer time, and including safe-haven bullion to the portfolio would possibly provide peace of thoughts throughout a interval that’s historically extra risky. All through historical past, conflicts and market meltdowns have damaged out ceaselessly over the summer time, and volatility could be exacerbated when buying and selling desks are understaffed and senior executives are away.
The flip facet is that when September arrives, there’s an inbuilt headwind for gold. September can be historically the greenback’s strongest month, which suggests merchants utilizing different currencies should purchase much less gold with their cash.
The dear metallic has rallied 22% this yr, together with 8% since July. It has been supported by sturdy purchases by central banks, elevated haven demand amid geopolitical tensions, and wholesome shopping for of bodily bars within the over-the-counter market.
Gold’s beneficial properties have additionally been pushed by expectations the Federal Reserve will begin to ease financial coverage subsequent month. Fed Chair Jerome Powell stated final week that the “time has come” to decrease rates of interest, however the pace and magnitude of cuts could also be key to figuring out whether or not bullion maintains its momentum.
Whether or not these tailwinds are sufficient to interrupt the September curse is one other query.
“Seasonality factors to a probably difficult month forward,” stated Ole Hansen, head of commodities technique at Saxo Financial institution A/S.
(By Jacob Reid)
GRAPHIC: Sturdy tailwinds for gold’s tour into uncharted territory