Gold's seasonal bias in September is as positive as it is negative for stocks.

Insofar as this coming September lives up to the historical odds, therefore, gold over the coming month will represent a safe haven from possible stock market turmoil.

But how strong are those odds?

Consider: Since 1976, which is soon after gold began to freely trade in the U.S., gold bullion has produced a 2.58% average return in September. That compares to a 0.41% average return across the other 11 months of the calendar -- a difference of 2.17 percentage points. That's significant at the 95% confidence level that statisticians often use when judging whether a pattern is genuine.

Of course, as statisticians will remind us, mere strength of a pattern's statistical record is not a reason in and of itself to bet on it. You need to couple that strong record with a plausible explanation for why the pattern should exist in the first place.

In the case of gold's strong September bias, there appears to be such an explanation. Three, actually, according to a study authored by Dirk Baur, a professor of accounting and finance at the University of Western Australia business school. Those three are:

  • Hedging demand by investors in anticipation of the :Halloween effect" in the stock market
  • Wedding season gold jewelry demand in India, and
  • Negative investor sentiment [in the equity market] due to shorter daylight time.

While the first of Baur's explanations is relatively straightforward, the other two require more explanation. Gold buying in India is heavily concentrated in the weeks leading up to the Festival of Lights, or Diwali, as the country's wedding season comes immediately thereafter and gold jewelry is often given as gifts. The dates of the annual festival are dependent on the lunar cycle; it occurs sometime between mid-October and mid-November.

This year Diwali begins on Oct. 27, and purchases of gold jewelry in Indian are likely to pick up as that date gets nearer.

The notion that the stock market could be affected by fewer hours of daylight has been shown in a number of prior studies. One such study is "Winter Blues: A SAD Stock Market Cycle," by Mark Kamstra of York University; Lisa Kramer of the University of Toronto, and Maurice Levi of the University of British Columbia. They report that equity market returns around the world are "significantly related to the amount of daylight through the fall and winter," which they in turn attribute to "seasonal affective disorder", or SAD.

In any case, however, note carefully that gold's positive September bias is based on historical averages, and bullion doesn't always rise in the month. So there are no guarantees. This is especially worth emphasizing given that gold lost ground in each of the past two Septembers, losing 1.3% in 2018 and 2.2% in 2017.

Still, when compared to other months, gold has increased odds of rising in September: Since 1976, it has risen in 65% of Septembers and 51% of all non-September months. You may find those increased odds attractive enough to place a bet on gold over the coming month.

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