E Understanding Seasonal Trends In Times Of Volatility

Gold, Ingots, Treasure, Bullion, Gold Bars, Wealth

Hold on tight – if the opening days of 2021 are any indication of what the rest of the year holds, investors are set for another eventful 12 months. 

This is probably not the news many of us were wanting to hear. Having just waved goodbye to one of the most volatile years of market trading, investors and traders were no doubt hoping for a return to relative normality. While this could be the case in the long-term, 2021 has started with a bang. 

From the UK transitioning out of the EU, to the storming of the Capitol Building in the US; investors find themselves closely monitoring political and economic developments with the potential to spark significant market movements. However, I don’t believe these events to be a cause for alarm. If anything, fluid markets open investors up to new opportunities – the key is preparation and research, backed by a clear investment strategy. 

Leaving contemporary events to one side, it is also important for investors and traders to take note of seasonal trends that typically unfold at the beginning of the year. One of the most important trends from one’s perspective is the price of gold (GLD). 

In the opening weeks of a new year, a spike in the demand for gold typically results in significant price gains. Since 1988, the price of gold has risen 21 times between 23 December and 17 February. Delving into this further, the price gain has averaged at around 2.85%. Of course, this gain can vary significantly. If we look to this period in 2008/09, gold prices rose by an impressive 14.76% – a consequence of the quantitative easing measures taking place in response to the global financial crisis. 

The reason for this spike in price has to do with the increase in Chinese demand for gold. In the lead-up to the Chinese Lunar New Year holiday, gold is typically bought as part of the celebration. Already, the precious metal has recorded its best yearly gain in a decade. On 4 January 2021, the spot price surged to above $1,900 an ounce in response to lower US real yields and a weak USD.

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Disclosure: High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs ...

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