Submitted by Mark O’Byrne – GoldCore
– Gold down 1.3% this week on Fed “noise”
– Gold up 3% in October on robust demand
– Stronger gains in euros, Swiss francs, Japanese yen
– October poor month for gold seasonally
– November, December, January and February the “seasonal sweet spot”
– Confirmation of surging demand for bullion in Germany, India and China in Q3
Gold is headed for a 1.3% fall this week after the Fed’s latest suggestion that they may increase interest rates in December or in the New Year. However, for the month of October gold is 3.1% higher from $1,115/oz to $1,150/oz and has seen even larger gains in other currencies.
Gold’s Seasonal Performance – U.S. Global Investors (1969-2010)
This strong performance in October comes despite October being traditionally a weak month for gold. This bodes well as we enter the “seasonal sweet spot” for gold.
Seasonally, while October is a weak month for gold, the months of November, December, January and February are positive months for gold. October often sees declines in the gold price followed by strong gains in November, December, January and February (see table above and chart below).
Today sees the end of October trading. November is, after September, one of the strongest months to own gold. This is seen in various data showing gold’s monthly performance over long time frames – 1975 to 2015 and indeed more recent time frames – 2000 to 2015.
Autumn and winter is the seasonally strong period for the precious metals.
This is believed to be due to robust physical demand internationally and especially in India for weddings and festivals. More recently, the emergence of China as the largest gold buyer in the world and their massive gold buying into year end as jewellers and bullion dealers stock up for Chinese New Year has reinforced and exacerbated this long seen trend.
It may also be related to traders being aware of the seasonals and therefore leading to self fulfilling price gains or price falls in certain months.
The fundamentals including the current macroeconomic, systemic, geopolitical and monetary conditions are positive for gold. These fundamentals in conjunction with the strong seasonals suggest higher gold prices are likely in the coming months.
Given the bullish fundamentals and the fact that gold already looks oversold with very poor sentiment today, any further weakness is likely to be short term.
Bullion buyers expect higher prices due to a combination of geopolitical, macroeconomic and monetary risk.
Geopolitical risk remains high given increasing chaos in much of the Middle East and rising tensions between NATO and Russia. The Middle East is increasingly volatile and we appear to on the brink of a war in the region. This comes at a time of deep tensions with an increasingly assertive Russia.
Given the confluence of still elevated geopolitical, systemic and monetary risks, we are bullish as we enter the seasonal ‘sweet spot’ for gold in the November, December, January and February time frame prior to Indian festivals and Chinese New Year demand.
Gold looks quite strong and appears to have bottomed during the summer – this is especially the case in euros, pounds and even more so in currencies such as the New Zealand dollar and the Australian dollar.
The technicals have improved too and these allied with the strong fundamentals – of an uncertain global economy, volatile and vulnerable stock markets and robust global demand for gold, particularly from China, India and Germany – are positive.
This week came confirmation that contrary to the widely held belief that gold demand is subdued it is actually very robust and indeed surging in key markets. Surging demand for coins and bars and a rise in buying by central banks pushed physical gold demand up 7% in the third quarter.
Demand for gold coins and bars jumped by 26% year-on-year in the last quarter, GFMS analysts at Thomson Reuters reported in the Q3 update of their Gold Survey 2015. Retail investment surged in top consumers India, China and Germany, with buying rising 30 percent, 26 percent and 19 percent respectively. Those three markets alone accounted for an additional 26 tonnes of bullion buying.
Despite the ongoing Federal Reserve “noise” to the contrary, ultra loose monetary policies are set to continue for the foreseeable future which is highly supportive of gold and will lead to continued demand for bullion internationally.
We continue to believe our long held view that these conditions will lead to new real, inflation adjusted record highs for gold over $2,400/oz in the coming years