Giles Coghlan LLB, Lth, MA
Financial Source
Gold has one of the strongest seasonal patterns of any asset for the months of January and February. Why is this? Well, part of the reason for this gold strength is that gold purchases are made ahead of the lunar New Year. In the last 10 years gold has climbed an average of 3.40% in January, rising in January for the last seven years in a row. February has a 10 year average increase of 1.64% as well. So, if there was ever a good time to buy gold January the 01 has made for a great first trade of the year for the last 7 years in a row. It has been the gift that just keeps giving. However, what about the fundamental picture for gold?
Gold (XAUUSD) is paired with the USD, so any positive US economic data supports the USD and weighs on gold. In order for the fundamental picture for gold to come into play we need a weak USD. So, for this coming week, if the Federal Reserve are bearish, that will support gold. If the US-China trade war takes a turn for the worst, that will support gold. If we get a run of weak US economic data, then that too will support gold. So, with the seasonal pattern being very strong for gold, if any additional bullish factors for gold materialise I am expecting to see gold shine very brightly for January 2020. If the Fed are neutral to bullish, the US-China phase 1 trade deal gets signed and, and US economic data follows in the same vein as Friday’s decent NFP print. In that case I am expecting more gold downside heading into year-end for the rest of December.
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