Gold: March Comes In Like a Lion
Seasonal pattern suggests accelerated decline this month.
Gold prices have soared by $304 per ounce, or a whopping 43% between late October, 2008 and late February, 2009, before pulling back a little recently. The catalyst for this kind of move in gold is typically concerns about inflation. However, this time it's been a stampede out of US equities and into anything that might offer some element of safety - including US Treasuries and our own US currency.
This frantic flight to perceived safety has resulted in gold prices and the US Dollar Index -which have historically been inversely correlated to one another - being 67% positively correlated since January. However, a 31-year seasonal pattern suggests that the mid-February decline in gold prices is likely to continue, and accelerate, in March.
The following is an excerpt from our March Global Seasonal Analysis report (access requires subscription), which displays and analyzes the latest seasonal patterns and trends for 17 different global financial markets including:
- Global equity prices
- Global benchmark interest rates
- Global foreign exchange rates, and
- Key commodity prices
Based on historical data going back to the 1950s.
Global Seasonal Analysis, March 2009
The red bar and highlights on the chart below identifies March as being the seasonally weakest month for gold prices (London PM gold fixing) since 1977, and the last of a 2-month period of acute seasonal weakness that also includes the third weakest month during this period. The blue highlights point out that a modest seasonal recovery then follows in April and May.
Click to enlarge
Normally, a decline in gold prices indicates an abatement in inflationary pressures and concerns. This time, though, we think that, should this strong, 31-year bearish seasonal pattern in gold prices hold true again this year, it may be more indicative of at least a temporary unwinding of the flight-to-perceived-safety trade that has driven both gold prices and the US Dollar sharply higher thus far this year.
If we're correct, a continuation of February's decline in gold prices should coincide with a decline in both the greenback and in US Treasury prices, and a rebound in the US stock market.
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