Gold Season: We Had Joy We Had Fun

Will the same pattern reoccur this year?

by Gold Trading Psycho via GoldTradingPsycho

I have been busy creating playlists to accompany my lonesome trading days recently and I came across a real blast from the past in Terry Jacks’ ‘Seasons in the sun’. Originally based on a song from a dying man to his unfaithful wife, Jacks’ version is slightly more positive, and I always associate ‘we had joy we had fun, we had seasons in the sun’ with this time of the year.

I love spring, without doubt the best season of the year. The transitional journey from the bleak winter to long summer nights kick starts a reawakening of senses.  I feel like a neanderthal emerging from my cave, ready to hunt.  Layers are ditched, blindingly reflective, lily white limbs reappear, and the extra hours of sunlight are a real mood booster.  Birds chirp happily and magpies alternate from romantic affection to stealing in the blink of an eye. Diverse, baby animals enter the world, and a multitude of green dominates the landscape.  Carbon dioxide is effortlessly converted to oxygen and the sun produces enough vitamin D to strengthen my bones, readying me for my 1st jog of the year.  No excuses now.

It is weird how our mindset changes over time and how seasons affect people in different ways. 30 years ago, I loved winter and prayed for rain in April to soften football pitches for my aching, flat feet.  Now, I want warmth.  Seasonal weather changes in barometric pressure can trigger a range of issues such as migraines, joint pain, or upticks in impulsive behaviour.  Warm weather widens blood vessels, and our hearts work harder to pump them with blood. The increased demand for blood means we need more oxygen and so at times we need to breathe more heavily and quickly. We can all become a lot more sluggish in the summer heat.   

Our sleep circadian rhythm may be impacted by natural light.  Too much and we produce less melatonin (which is triggered by darkness and prepares our body for sleep) and more cortisol (which makes us more alert). Levels of serotonin, which boosts mood, are triggered by sunlight, so we waken early and stay awake longer.  ‘Hello, I am Mr Periodic Table, full of hormones and chemicals, pleased to meet you’. 

‘Sell in May, go away and do not come back until St. Leger’s day’ is a well-known trading adage where aristocrats, merchants, and bankers would leave London and escape to the country during the hot summer months and not return until St. Leger’s Day, a thoroughbred horse race held in mid-September.  The belief was that, as warm weather sets in, and market participants go on holiday, low volumes can lead to highly risky markets.  Understanding the impact of the seasons on their hormones and chemicals, they decided it was better off to be out than in. 

We know that precious metal prices are driven by the dollar, interest rates, inflation and geopolitical events but are they seasonal commodities?  The simple answer is yes, they are and one of the largest drivers of seasonal gold demand comes from India. If the crucial monsoon season fails to deliver adequate rain, rural farmers will sell some or all their Gold insurance to pay for food. Conversely, a good monsoon season and bumper crops will increase demand for the precious metal. Diwali (also known as the Festival of Lights) is a major shopping season in late October or early November where families splash out on gold jewellery and finally, the Indian wedding season peaks from late October to early December. These are lavish affairs with celebrations lasting several days. The bride’s beauty is enhanced by the gold ornaments she wears, and it brings good fortune, since it signifies the blessings of Goddess Lakshmi (the goddess of wealth, fortune, love, beauty, joy, and prosperity). There are nearly 20 million weddings in India every year, so these seasonal events have a massive impact on the demand for Gold. 

Various research pieces going back 50 years, has indicated that Gold generally rises at the start of the year, drops the most in March, drops slightly more in April, dips again in mid-June to early July and then rises to peak in September. This is perfectly illustrated by the 2020 Gold chart below. Covid clearly amplified the moves last year and historically we are now in the best time of the year to buy Gold.

Buy when there is “blood in the streets” and in March 2020 this was certainly the case. Indeed, it was very bloody. If I followed the stock market adage of ‘selling in May’ I would have made the right call, but only for a month.  If I ‘did not come back till St. Legers day’ in mid-September though, I will have walked away from a $300 gain from June to the end of August and a gain of nearly $650 from April to the end of August. Nobody catches these turns perfectly and if they say they do, they are lying.  I was scared out of some positions in March 2020, and I sold past the peak in September but hey, I made a profit, and charitably left some money on the table for fellow traders.  That is the kind of guy I am.  

Will the same pattern reoccur this year?  January and February 2020 saw a decent rise, whilst January and February 2021 saw the frustrating pullback continue, so nothing in life is guaranteed. No one can predict what the dollar, interest rates and inflation will do, and no one can predict which country Biden is going to pick a fight with but for what it is worth, I think we have just bottomed in the usual March/April seasonal timeframe.

On the daily chart, Gold is taking a breather having hit resistance at $1800.  A Fed meeting takes place today, so I fully expect the criminals to be out in force, trying to whack us with their Government funded mallets. They never learn.  We just smile, brush ourselves down, thank them for the beating, take a paracetamol and keep popping back up to buy at lower prices.

Saturday 1 May sees the 10-year anniversary of when Silver was slaughtered from its peak at $50, and our bankers and hedgies will no doubt see this as another opportunity to send us a message that they are in control.  OK, if you insist, bring it on.

These are the paper markets of course – should you wish to buy physical silver; you will be paying 40% more as demand overwhelms supply. It is easy for the criminals to manipulate the paper price (and this will be a topic I will cover in due course), but not so easy to manipulate the physical price. Silver traders have equally long memories and a patient, decade long, retribution will see it hit $50 once again. Tis then, we will truly have joy and fun and our seasons in the sun.

Food for thought

Oi Boris, Starmer, Cummings, Van Der Leyden, Macron – stop your ‘he said, she said, I paid, you paid, you breached, we breached this, that and the other’, tittle tattle. No one cares?  You are hollow faces with no substance who lost all confidence and credibility months ago.  Whilst you are all back-stabbing each other and laying blame at each other’s doorsteps, Liz Truss, the Secretary of State for International trade has arranged 67 post Brexit trade deals worth billions.  Take a leaf out of her book and start doing your own jobs…but this time, properly.

For starters, how about sorting out the potential confusion over foreign travel, preferably before people go on holiday? Countries will be ranked using a traffic light system, with travellers able to visit destinations on the ‘green list’ without quarantine but fears have been raised that holidaymakers could still face trouble if the Foreign Office separately advises against travel to the destination, thereby invalidating travel insurance.  What a surprise – one part of Government not agreeing or talking to the other. I can already hear Matt Lucas impersonating Boris, saying, “Don’t go on holiday, go on holiday, don’t take flights, only travel if vaccinated, don’t travel if vaccinated, if it is ‘green’ go on holiday, if the Foreign Office says ‘no’ don’t go on holiday, stay indoors, if you can holiday from home go on holiday, don’t go on holiday, go outside, don’t go outside and then we will or won’t do something or other,”.  Tourism is dead and I have accepted I will only see the United States again via Aerial America on the Smithsonian channel.  Avoid the confusion and block book your local Betty’s Bed and Breakfast for the 1st week in August for the next 25 years.

“We clearly misjudged how this deal would be viewed by the wider football community and how it might impact them in the future. We will learn from this” JP Morgan learning? That is the funniest thing I have read all week.

Stay safe and see you next week. I am Sheep Shearer and I shear sheep.