Will the tailwinds of gold be enough to overcome the September curse?

Gold investors returning from their summer vacations will be keen to see if the precious metal can sustain its record-breaking rally or succumb to the September curse.

Bullion has fallen every September since 2017. Over that period, the average decline in September has been 3.2% – easily the worst month of the year and well below the monthly average gain of 1%.

It’s a phenomenon that has confused economists who believe markets should behave more efficiently, and it’s not limited to gold: September is typically the worst month for US stocks, with the S&P 500 down more than 1.5% on average over the past decade. has happened .

The dynamics are not reliable – gold has actually risen in September over a three-decade horizon – but one explanation for the recent weakness is that traders are buying bullion to take a defensive position in the increasingly turbulent summer months, before selling on their returns. In office in September.

“Before you go on vacation and step away from your screens, you want to hedge your risk in the market, and one way you can do that is by buying gold,” said Boris Mikhanikrzai, an analyst at FastMarkets.

Academics have shown that some investors “switch off” in the summer, and adding safe-haven bullion to portfolios can provide peace of mind during traditionally more volatile periods. Throughout history, conflicts and market meltdowns have frequently erupted in the summer, and volatility can increase when trading desks are understaffed and senior executives are away.

The flip side is that when September comes around, there is an inbuilt headwind for gold. September is also traditionally the dollar’s strongest month, which means traders using other currencies can buy less gold with their money.

The precious metal is up 22% this year, including 8% since July. It has been supported by strong buying by central banks, increased haven demand amid geopolitical tensions and healthy buying of physical bars in the over-the-counter market.

Gold also gained on expectations that the Federal Reserve will begin easing monetary policy next month. Fed Chair Jerome Powell said last week that “the time has come” to cut interest rates, but the speed and magnitude of cuts could be key in determining whether bullion maintains its momentum.

Whether these tailwinds are enough to break the September curse is another question.

“Seasonality points to a potentially challenging month ahead,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.