September is shaping up to be a good month for gold
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That’s because there’s an additional factor in bullion’s favor in September: seasonality. Since 1973, when gold began trading freely, September has been the best month of the year, on average, for the yellow metal.

The chart below plots the data. Gold’s average September return has been 1.8%, more than double its all-month average of 0.8%.

There is no guarantee that gold will gain in September, of course. Because of the significant variability in the month-by-month results, gold’s historical pattern of better-than-average performance in September is statistically significant at the 93% confidence level, according to my calculations.

While shy of the 95% level that statisticians often use, it still may be high enough to justify including it in the range of factors to consider in a gold-trading strategy over the next month.

Many of these other factors are also bullish, including:

  • The recent spike in U.S. inflation may be more than transitory. Not everyone believes higher inflation is with us to stay, but those who do are finding plenty of evidence to support their argument. Bond guru Jeffrey Gundlach, founder and chairman of Los Angeles-based DoubleLine Capital, said last week that the odds now favor inflation averaging more than 5% for all of this year. He pointed in particular to the impact of the imminent lifting of the moratorium on evictions. That could lead to landlords aggressively raising rents, which in in turn would cause the CPI to spike even higher.
  • Federal Reserve Chairman Jerome Powell struck a dovish note at last week’s Jackson Hole symposium. Though he signaled a willingness to start as earlier as later this year the tapering of the Fed’s aggressive pace of purchasing government bonds, he simultaneously made it clear that he was also willing to keep interest rates low well into next year or longer.
  • Despite these bullish factors, gold market timers on balance remain subdued, if not outright bearish. This is a good sign, according to contrarian analysis, because gold’s chances of rallying would be greatly diminished if there were too much bullishness among gold timers. That’s definitely not the case right now. According to the latest reading of the Hulbert Gold Newsletter Sentiment Index, gold timers on average are recommending that their clients allocate just 3.3% of their gold-trading portfolios to going long.

Why does gold tend to rally in September?

You shouldn’t bet on a statistical pattern unless there is a plausible rationale for why it should exist. I made this argument in a column last week when I pointed out the lack of such a rationale in the case of the U.S. stock market’s below-average historical performance during September.

But there may be such a rationale in the case of gold. Several, in fact. Dirk Baur, a professor of finance at the University of Western Australia business school, has hypothesized that gold’s strength in the fall may be caused by one or more of the following:

  • “Hedging demand by investors in anticipation of the ‘Halloween effect’ in the stock market”
  • “Wedding season gold jewelry demand in India”
  • “Negative investor sentiment due to shorter daylight time.”

To be sure, more research is needed here. While each of these three factors has been shown to be significant in its own right, a cause-and-effect relationship with gold hasn’t been proven. Still, don’t be surprised if gold performs well over the next month.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected]

More: Why you should think twice before betting that stocks will have a rough September

Also read: The S&P 500 hasn’t seen a year-to-date rally this strong since 1997. What’s next?

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