Does gold perform stronger at certain times of the year?

It has been a strong start to 2020 for gold, with the yellow metal rising by 12.99% in AUD terms, and 4.54% in USD terms in the first two months of the year.

The increase in the gold price has seen an uptick in investment demand and queries from potential investors looking to find out information about the gold market.

Investors often ask the question about seasonality, and whether or not there are certain periods of the year where gold historically performs strongly, and other periods where its performance is more subdued.

The table below helps answer this question, highlighting the average monthly percentage return for gold priced in USD. The table is based on analysis of gold price return data from the beginning of 1971 through to the end of January 2020.

The figures are calculated by taking the sum total of the returns seen in each month, and dividing it by the total number of months. For example, if the total return of gold in every January between 1971 and 2020 added up to 100%, then the average monthly return for January would be 2%, as there have been 50 Januaries over that timeframe.

It identifies that returns for gold priced in USD have typically been strongest from November through to end February, with three of the best four months of the year falling in that period.

The table also highlights the fact that historically gold has delivered positive returns in 11 months of the year (though June and October are basically flat), with March the only month of the year that has historically seen gold prices decline.

Whilst seasonality data is interesting to analyse, it is not an indicator that many people use as a driver of their investment decisions. There are multiple factors that can move the gold price in any given day, week or month, with no guarantee that average monthly returns will be repeated going forward.

It is also worth noting that there is volatility between the average, best and worst numbers seen in any given month. January for example, which on average has been the best month, once saw a gold price decline of -13.57%. March, which on average has been the worst performing month, once saw a gold price rise of over 14%.

Given these factors, there is risk for investors who try to time the gold market based on seasonality data alone. Long-term focused investors will instead prefer to work out what percentage of their portfolio they wish to allocate to gold (and other precious metals), and move that percentage up or down based on their own financial circumstances, as well as developments in the economy and financial markets.