Starting in mid-December of 2016, gold caught a bid and by the end of February 2017, it had rallied 12.5% from low to high. A similar move happened this year. The COMEX gold futures contract put in a low at $1238.30 on December 12th of 2017 and rallied to an intermediate high of $1365.40 on Jan 25th before pulling back 4.1% and then rallying again to fall $1 short of the January high. Gold hit $1364.40 on February 16th, before consolidating over the next 6 weeks. The December to January rally from low to high was +10.2%, consistent with the normal seasonality we see in gold.
Gold’s Seasonal spike
Physical commodities like gold, silver, copper and even crude oil have seasonal patterns that, all else equal, tend to work very well. One of the stronger seasonal patterns is the beginning of the year rally for gold and silver. See chart:
The pattern has an anecdotal basis that seems to hold up to scrutiny. Strong culturally-driven traditions and a continued appreciation for gold and silver jewelry in Asian nations contribute to the seasonal rally in gold. Gold and silver jewelry are still the preferred gifts for wedding and other celebrations, and spring weddings are very popular in most cultures. Gift buying for coming celebrations begins in December for the following year and continues into in January, increasing demand. Considering that gold is down 10.5% from the 2018 highs, the current price could be viewed as cheap and subsequently, the seasonal push may begin sooner than usual. There are also plenty of geopolitical risks currently on the horizon that could drive the price as well, but that’s for another post. The current price action and seasonal factors may finally be telling us to look at how high gold could go this January. ♦