Is Gold Rewriting History in September?

September has seen a notable surge in gold prices, bringing back into focus seasonal trading strategies that had been deemed ineffective in recent years. These strategies are based on the idea that gold tends to perform particularly strongly during the month of September. This idea originates from a study published in the journal 'Research in International Business and Finance' in January 2013. The study, which covered the period from 1980 to 2010, found that gold's average performance in September was significantly better than in other months.

Shifting Gold Behavior: A Look at the Recent Past

Unfortunately, this seasonal trend halted shortly after the study's publication. Since 2010, gold has experienced declines in 11 out of 14 Septembers, a probability of 79%. Furthermore, the average gold price during this period has cumulatively fallen by 2.2%, while the average gain in the other 11 months has been 0.8%. This shift in gold's behavior has significantly weakened the statistical significance of the earlier study's conclusions.

The Current September Rally: Just a Coincidence?

The question now is: is the current rally in gold prices in September enough to prove the return of the historical trend? The answer depends on whether there is a solid theoretical basis supporting the idea that gold outperforms other months in September. In the absence of such a basis, this pattern is likely just a statistical coincidence. No reliable theoretical basis has been found so far. When analysts were asked why gold is particularly strong in September, the most common answer was that gold may benefit from the same seasonality that affects stocks, i.e., stocks perform particularly poorly in September.

In-Depth Analysis: Is the Theory Supported by Data?

But this theory does not stand up to scrutiny. Since 2010, the average decline in the Dow Jones Industrial Average in September has been 1% (while the average gain in the other 11 months has been 1%). If gold really benefits from "money flows out of stocks," gold's performance in September should be good after 2010 - but the opposite is true.

Lessons Learned from Gold's Volatility

This shift in gold's behavior offers valuable lessons for investors, the most important of which is that betting on seasonal patterns is not suitable for short-term traders, but requires years of consistency and discipline. For example, in the study that covered 30 years of gold's performance in September (1980-2010), gold rose in 21 months, a probability of 70%. But even if gold maintained this strong trend in every September after 2010, there would still be a 30% chance of losing when betting on gold in one September. The only way to turn this probability into a reliable profitable strategy is to bet on gold in September for consecutive years. In other words, accurately predicting that gold will achieve a positive return in a specific September, even if not impossible, is very difficult.

Commitment to Long-Term Strategy

Therefore, when an investor starts using a strategy because of its "statistically significant record", it is best to stick to implementing it. The strategy should only be abandoned when new data makes the strategy's long-term record no longer statistically significant. This means that even in the event of a series of losses, the investor may need to continue to follow the strategy.

Examples from the Past: Lessons in Perseverance

For example, gold experienced significant declines in September 2013 (down 5.4%), September 2015 (down 7.0%) and September 2016 (down 7.4%), declines that exceeded any decline in September since 1980. Undoubtedly, by 2016, traders betting on gold's strength in September were ready to abandon this strategy. But even so, during the entire cycle from 1980 to 2016, gold's return advantage in September compared to other months remained statistically significant at a 93% confidence level - which is very close to the 95% confidence level used by statisticians to determine whether a "pattern really exists".

Conclusion: Caution and Vigilance

Therefore, investors who believe that "gold performs particularly strongly in September" should not be overly excited about the current rise in gold prices in this month - it is likely just a coincidence. Even if this means "the return of the long-lost seasonal pattern", it will take years to verify.