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October 24, 2019 | Gold Seasonality Turns Positive – Prepare For A Big January

John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What To Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website in 2004 and sold it in 2022.

The gold market has a saying — “sell in May and go away” – for a good reason: Asians like to give gold jewelry as wedding gifts and tend to hold most of their weddings in the Spring. Asian jewelers therefore have to load up on inventory – in the form of gold bullion – in winter. This demand cycle puts upward pressure on prices in January and downward pressure in late Spring when Asian buying dries up.

But not this year. Starting in May, when history says gold should be weak and gold bugs who know what’s good for them should be off doing other things, gold jumped from $1,250 to $1,500, where it currently sits.

gold seasonality central bank gold demand

Now the question becomes: Is the “buy in December” part of the cycle still valid or did the unusual Summer action invalidate the thesis? This matters because a typical January spike from current levels would take gold to within shouting distance of its all-time high of $1,900 – putting the US in the (large and growing) club of countries where gold is at record highs. Which is the same thing as asking whether the dollar will fall relative to gold as the euro, pound and C$ did recently.

The other big question is why seasonality didn’t dominate the action this year. What other factor or factors are at work to send gold higher when Asians aren’t buying? One possible answer is that central banks, rightly losing faith in their own ability to manage their currencies, are shifting their reserves to gold. This widely-circulated chart shows German central bank gold rising for the first time in this century.

German gold central bank gold demand

Which means a couple of things. First, Germany’s central bank, the Bundesbank, is widely seen as an island of sanity in a sea of monetary crazy, which makes it influential. News that it is now a buyer of gold rather than a seller might influence the dimmer bulbs running other central banks, making government buying a feature of the gold market for years to come. Second, since the source of the Summer action had nothing to do with Asian jewelry demand, there’s no reason to expect Asia’s typical January buying to depart from past patterns.

Taken together, rising central bank gold buying and typically-strong Asian demand could make January just as much fun as this Summer was.

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October 24th, 2019

Posted In: John Rubino Substack

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