A Triple Whammy for Gold – But Are These the Real Reasons for the Rise?

Gold just hit a 12 month high in London and Asian markets – trading at $1,345 at the time of writing.

Most observers see three main reasons for this spurt upwards:

• The likelihood of war looming in the Far East as tension between the US and North Korea increase.

• The possibility of a major correction in the US stock market

• Bitcoin suffering a major blow as China refuses to sanction ICOs

These same observers see the flight to “known safe haven” investments as a likely result of these three possibilities.

The perceived wisdom is that any combination of these scenarios actually happening could lead to a domino effect across the financial world. Those sensitive to the signs of a major disruption approaching have left little doubt as to their intentions.

Gold has risen 16% so far this year. Most of this growth has taken place since mid-July when gold hit the $1,200 mark. The timing of the 3 points above is no coincidence for them.

The threat posed by the regime in North Korea has been growing for several years, but the recent goading of the United States by Kim Jong-un, with his rhetoric, and the launching of several intercontinental ballistic missiles – one of which was fired over Japan – has brought the real prospect of retaliation ever closer.

This, in turn, has led to jitters and volatility in the US stock markets.

However, underlying all of this is something many investors are blissfully unaware of – September is, historically, the most negative month in the year for stock market returns.

The “Stock Trader’s Almanac” reports that, on average, September is the month when the stock market’s three leading indexes usually perform the poorest.

Since 1950, the month of September has seen an average decline in the Dow Jones Industrial Average (DJIA) of 1.1%, while the S&P 500 has averaged a 0.7% decline during September. Since the Nasdaq was first established in 1971, its composite index has fallen an average of 1% during September trading.

One of the factors rarely studied by most investors is the seasonality of the markets. Most are chasing the 4 hourly, daily, even weekly charts – but many never consider the signals and indicators which appear each year, almost as signposts to the market.

These signposts also give an indication to the contrarian markets like gold.

The fact that markets are cyclical is something every investor knows, but the type of cycles that are followed are usually long-term – 7, 10, or 20-year cycles. This annual cycle of returns is a pattern which recurs – but this year may see the negative rate fall even lower.

Stock market investors who are not aware of this pattern are likely to panic if there is a lower than normal negative rate. This, in turn, may trigger a wider scare which could spook the markets even further.

This has implications for the gold market as well, gold often follows the opposite direction to the US stock markets, so whether buying or selling in the current conditions, it is worth bearing this basic seasonality in mind.

The war scenario, like the Bitcoin ICO ban, is an event that any investor can do little about. Reducing your risk and reading the signs of seasonality, on the other hand, is something every investor should take a look at.

Noble Gold, protecting your retirement with professionalism