Gold Fever Hits New Highs: A Joy or a Worry for Investors?
The precious metals market is experiencing unprecedentedly vibrant days. Spot gold prices are continuously breaking through key resistance levels, setting new all-time highs. On investment forums, from Wall Street to small groups in Vietnam, an atmosphere of euphoria is spreading. The “Fear Of Missing Out” (FOMO) is compelling many novice investors, and even seasoned ones, to pour money into this safe-haven asset with the expectation of quick profits.
This impressive growth is not without basis. The global macroeconomic landscape is fraught with uncertainty: escalating geopolitical tensions in many regions, persistent inflation eroding currency values, and unpredictable moves from major central banks. In a world full of volatility, gold, with its role as a store of value proven over thousands of years, shines even brighter. However, following the crowd without a solid strategy and deep understanding can be a dangerous trap. A thorough gold price analysis reveals that even when the overall trend is positive, cyclical obstacles can make impatient investors pay a steep price.
It is precisely in this context of euphoria that looking back at history becomes more critical than ever. Is the current momentum strong enough to break a pattern that has persisted for decades? Or is this just a big wave before the gold ship hits the iceberg of seasonal patterns?
“The September Curse” – A Historical Ghost Haunting the Gold Market
For many veteran analysts, September has often been considered a particularly favorable month for gold. This belief stems from a highly influential study published in the “Research in International Business and Finance” journal in January 2013. The study, titled “The autumn effect of gold,” found that from 1980 to 2010, gold’s average performance in September was statistically significantly better than in other months. Over those 30 years, gold rose in 21 Septembers, achieving a success rate of 70%.
Ironically, however, this pattern seemed to cease right after the study was published. According to an analysis on MarketWatch by expert Mark Hulbert, data since 2010 paints a completely opposite picture. Specifically:
- In the 14 Septembers since 2010, the price of gold has fallen 11 times. This is an astonishing failure rate of 79%.
- The average loss for gold during these Septembers was 2.2%.
- Meanwhile, the other 11 months of the year recorded an average gain of 0.8%.
This sharp reversal not only weakens the conclusion of the 2013 study but also poses a major challenge for anyone conducting a gold price analysis based on seasonal models. It shows that the market is always changing and that past patterns are not always a reliable guide for the future. The decline of gold in the Septembers after 2010 was strong enough to nearly erase the entire statistical advantage it had accumulated over the previous 30 years.
Gold Price Analysis: Seeking an Explanation for the September Anomaly
Why would a seemingly solid pattern suddenly change? When asked why gold tended to perform well in September, the most common answer from analysts often relates to the stock market. According to this theory, September has historically been a bad month for stocks. Therefore, investors would withdraw money from the stock market and move it into safe-haven assets like gold, thereby pushing gold prices up.
At first glance, this hypothesis seems plausible. However, when examining the actual data, it doesn’t hold up. Since 2010, the Dow Jones Industrial Average (DJIA) has indeed performed poorly in September, with an average loss of 1.0% (compared to an average gain of 1.0% in the other 11 months). If the theory were correct, gold should have benefited from the capital outflow from stocks and had a decade of strong performance in September. But the reality was the complete opposite. Gold fell sharply. This indicates that there is no simple inverse correlation between stocks and gold during this period, and we need another explanation.
“If gold were benefiting from money being withdrawn from the stock market, gold should have performed well in September since 2010. But this theory doesn’t hold water.” – Mark Hulbert, MarketWatch.
So what is the cause? Some experts suggest the change may come from larger structural factors. The rise of gold ETFs, shifts in monetary policy by central banks after the 2008 financial crisis, or changes in physical demand patterns from major markets like India and China could all be contributing factors that have altered the seasonal pattern. However, no single theory is widely accepted. The lack of a solid theoretical foundation makes believing in the return of the “September effect” too risky. Any serious gold price analysis must acknowledge that the strong rally in gold in the early days of September this year could very well be just a random coincidence, a statistical “noise” rather than a sign of the return of an old rule.
A Lesson from History: The Pitfall of “Riding the Wave” of Seasonality
The story of the rise and fall of the “September curse” offers valuable lessons for investors, especially those inclined towards short-term trading. The first and most important lesson is: betting on seasonal patterns is not a strategy for the faint of heart or the impatient. It requires discipline and a vision that spans many years, even decades.
Let’s reconsider the golden period of 1980-2010. Even during that time, with a 70% success rate, you still had a 30% chance of losing money by betting on gold in any given September. The only way to turn that probability into a reliably profitable strategy would have been to execute it consistently, year after year. Therefore, it’s difficult to conclude whether gold’s return (or loss) in a particular September is due to a seasonal pattern or simply luck.
When you decide to follow a strategy because of its impressive track record, you must be prepared to stick with it, even when facing a string of losses. You should only abandon the strategy if, with the addition of new data, its long-term record is no longer statistically significant. This means you might have to endure significant psychological shocks. For example, gold experienced particularly large losses in September 2013 (-5.4%), 2015 (-7.0%), and 2016 (-7.4%). These losses were larger than in any previous September since 1980. By 2016, a trader betting on gold’s September strength would have been more than ready to throw in the towel. And yet, a gold price analysis over the entire period from 1980 to 2016 showed that September’s advantage over other months was still statistically significant at the 93% confidence level—remarkably close to the 95% level that statisticians often use.
So, What Should Investors Do? Building a Solid Strategy Amidst Volatility
Faced with conflicting information and market complexity, how should individual investors act? Instead of trying to predict short-term fluctuations or “ride the wave” of uncertain seasonal patterns, building a long-term, well-founded investment strategy is a much wiser approach.
- Focus on fundamentals: A comprehensive gold price analysis should focus on long-term drivers. These factors include: real interest rates (nominal interest rates minus inflation), the strength of the U.S. dollar, the level of geopolitical risk, the policies of central banks, and physical gold demand from the jewelry and industrial sectors. These are the foundational elements that determine gold’s long-term trend, not the statistical “noise” of a specific month.
- View gold as a diversification tool: The most important role of gold in an investment portfolio is not to generate spectacular returns, but to protect the portfolio from shocks. Gold often has a low or negative correlation with risky assets like stocks. When the stock market plummets, gold often holds its value or appreciates, acting as a safe “cushion.” Allocate a reasonable percentage (typically 5-10%) to gold as part of a long-term diversification strategy.
- Apply a dollar-cost averaging (DCA) strategy: Instead of trying to “buy the dip” or “chase the peak,” consider buying gold regularly over time. By investing a fixed amount of money monthly or quarterly, you will buy more gold when the price is low and less when it is high. This strategy helps mitigate the risk of buying in at a peak price and builds an investment position sustainably.
- Maintain psychological composure and discipline: Don’t let daily fluctuations or sensational headlines affect your investment decisions. Stick to the plan you’ve laid out. History has shown that the most successful investors are those who can remain calm and steadfast in their strategy, even during the most turbulent market periods.
In conclusion, those who believe in gold’s seasonal strength in September should not get too excited about the recent rally. It might be nothing more than a random fluke. Even if it does signal that the old pattern has returned after a long absence, it would take many more years to confirm it. For the individual investor, relying on a fundamental gold price analysis and a long-term strategy will always be the safer and more effective path.
Refer to MarketWatch
