Gold drifts higher after yesterday’s hectic back and forth

(USAGOLD – 12/21/2020) – Gold drifted marginally higher this morning after yesterday’s hectic back and forth. It is up $1.50 on the day at $1881 as financial markets register a generally underwhelming response to Washington’s new stimulus package and simultaneously worry about a new strain of the virus now spreading rapidly in the United Kingdom. Silver is down 20¢ at $26.06. Seasonality is not something usually associated with the precious metals markets, but December nevertheless is often the month when gold bottoms. Echo Bay’s Vince Lanci recently offered some enlightening rationale for gold’s year-end price behavior in an article posted at the Zero Hedge website.

“Precious metals have a seasonality little understood by those outside the Bullion Bank professional community,” he says, “Yet both a ‘buy’ and ‘sell’ season do exist based on investor flows and bank allocation recommendations. Gold and silver are not grown or harvested, but their price action is susceptible to the weather of investor demand. Yearly investor flows can be as reliably handicapped as any weather-based seasonality.” Lanci goes on to say that speculators, particularly hedge funds, tend to book profits on winning positions as the year closes – between September and November – generating “temporary distortions and thus more opportunity.” He says that “this seasonality has been around forever in gold and silver, but  it has become more pronounced in recent years because of the increased interest in the markets.” Lanci says that bullion banks and “smart prop firms” like to take advantage of these annual fire sales.”

Chart[s] of the Day

Line chart showing the seasonal trend for gold 10 year average

line chart showing silver seasonality 10-year average

Chart courtesy of • • • Click to enlarge

Chart note:  For an explanation of the seasonal patterns illustrated in the charts above, please see today’s Daily Market Report above.  For additional detail, we also recommend “Since 2015, gold’s year-end lows have given way to new year rallies.”  originally published in the December issue of News & Views – our monthly newsletter.

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