According to the Bloomberg Chart of the Day shown above, which depicts average monthly gold price gains over the past 20 years, historical analysis reveals a pattern that shows the highest seasonal gains happen during the months of September and November.
For the past two decades the price of gold bullion has reliably risen by an average of 3% during the month of September, due primarily to various seasonal buying patterns. November is the second-best month for gold price surges, with an average gain of 1.8% across the 20-year period.
What Causes the September Surge?
September is just one of the months that falls withing the Fall-Winter “sweet spot” that has been heavily researched and discussed. There are a number of cultural and investment-motivated factors that drive the bullion gains we reliably see during the 9th month of the year. In summary, the gains are mostly caused by an increase in demand due to global seasonal buying habits, mostly in the Middle East and Asia.
A major source of the buying increase comes from India, where a yearly festival period occurs from late August into October, followed by their world-famous wedding season that peaks from September to January. As of 2012, gold buying from India accounted for an impressive 32% of the market, and that figure hasn't changed much in the past two years.
About half of the gold bought in India is purchased for the manufacture of jewelery used in the more than 10 million Indian wedding ceremonies and celebrations held every year. As the wedding season approaches, Indian gold dealers and jewelers will be stocking up to prepare for the increased demand.
While gold buying remains a major trend in India, as of 2013 China buys more gold than any other nation. The country is known to stock up on gold before the Lunar New Year celebration that takes place in February. However, China's surge in gold buying usually occurs closer to the end of the year.
Finally, another factor that causes prices to surge in September is that a lot of people are aware of the aforementioned facts about seasonal gold buying trends, and as such many investors feed into the momentum and make more gold purchases in anticipation of the price increase.
Buying Before the Surge
The past couple months have seen gold prices drop a bit. The price drops were bad news for investors who already had gold holdings, but better news for investors who are just buying in because it gave them an opportunity to purchase gold at a slightly lower price than usual.
If you've been thinking about buying gold lately, statistics say that now would be a great time to do it. If you wait until any later than mid-September then you'll only be hurting your own position by paying a higher price. If you look at the chart above you'll see that the end of August typically sees a rush similar to September's. This is likely due to the fact that many traders and gold buyers know that September brings significant gains and are therefore more inclined to buy before the price starts to rise.
Whether you're looking to add diversity to your portfolio or protect a portion of your retirement savings, if you're on the fence about buying gold this year it would be wise to make your decision before the price goes up.
Of course, the price of gold has been steadily rising for the past decade, so waiting to buy has almost always resulted in paying higher prices, but this time of the year in particular will be a bad time to buy gold if you don't get in before the seasonal sweet spot starts bringing price gains.
Last year was also a good time for investors and traders to jump on board the gold rush, as prices dropped nearly 30% during 2013 but then rebounded for an almost 7% gain during 2014. In fact, last year's decline (which was the largest in three decades) sparked an influx of gold purchases from Asia, India, and independent investors worldwide.
Still, last year gold prices dropped by 4.7% in September, going against the 20-year average trend. Although it remains to be seen whether this September will show the types of gains we're used to seeing, its safe to say that, if you're going to be buying gold this year, it would be prudent to do so before the September – December period rolls around.
September is Also the Worst Month for Stocks & Equities
It turns out that if september is the best month for gold, it is also the worst for stocks and equities. Is anyone surprised? We all know that, for the most part, physical precious metals and the stock market have an inverse correlation, so this is expected to happen.
Statistics show that the index has fallen an average 1.4% in September since 1929. Over that same period, september is the only month the S&P 500 dropped more than 50% of the time, said Sam Stovall, chief investment strategist at Standard & Poors.