Inflation threat: is gold seasonality favorable as well?

Article in German

There was a strong increase in recently released US inflation data. They exceeded expectations four times in a row and most recently stood at 5.4 percent.

High inflation rates are a good reason to consider investing in gold.

Is now a seasonally favorable time period for buying gold as well?

Federal Reserve tries to placate

The Fed dismissed inflation as “transitory” and left the federal funds rate in the vicinity of ridiculously low 0 percent.

However, in view of excess savings in the amount of $3.5 trillion piling up since the beginning of 2020 alone (as measured by the trend in M2 money supply growth), elevated inflation rates threaten to become anything but “transitory”.

Moreover, the hands of the Fed are essentially tied: due to high debt levels, it can barely hike rates. Were it to do so, a flood of bankruptcies in the private sector and problems with government funding would ensue.

Thus there is a risk of sustained high inflation rates amid interest rates that are too low. These are paradisiacal conditions for gold, which typically rises when real interest rates are too low.

Is there currently a seasonally favorable time period for purchasing gold as well?

Gold rises seasonally from July

Take a look at the seasonal chart of gold below. It depicts the moves in the gold price in the course of a calendar year averaged over the past 25 years. The horizontal axis of the chart shows the time of year, the vertical axis shows price information (indexed to 100).

Gold in USD, seasonal pattern over the past 25 years

gold seasonal chart 25 years

Gold typically rises from July – Source: Seasonax

As the seasonal chart shows, gold declines seasonally from the end of February until July. Thereafter it rallies from July until early October and then again from mid-December.

Now is therefore indeed a good time to buy gold.

Gold mining shares could rally as well

Inflation, too low interest rates and seasonality are currently favorable for gold. This could also have a positive effect on gold mining stocks. But what is the shape of their seasonal patterns? You can quickly find that out on your own at Naturally other stocks and commodities can be examined as well.

Seasonality can improve your investment results!

Inflation in conjunction with too low interest rates could also provide a strong long-term boost to the gold price. Seasonality then helps you identify a good time to buy. This method represents a combination of two approaches to trading.

I am a believer in seasonality. However, that does not mean that I reject other trading approaches. In this case, I combine negative real interest rates (fundamentals) with seasonality (statistical evidence).

You do not have to relinquish your tried-and-true trading strategy when using seasonality either. You can simply use seasonality as an additional input for your trading decisions. That way you can generate even better returns!

Good luck with your trading and investing!

Yours sincerely,
Dimitri Speck
Founder and Head Analyst of Seasonax

PS: Combinations with seasonality can improve your returns!