Knowing Gold Price Seasonality-Karvy Comtrade

The yellow metal gold has seen a phenomenal rise in both 2008 and 2009. Last year we saw active gold future prices touching historical highs of $1033.90 a troy ounce backed by the depreciating dollar, leading to an increased appeal of the gold as alternate asset class. From thereon, gold prices fell to $681 levels as dollar appreciated on back of financial and economic uncertainty and cash liquidity got squeezed in the market. In the current year, prices seem to be back on bull track as they surge by 8.8% in a span of 48 days.

Demand for gold is broadly classified into jewelry fabrication, industrial application, government and central banks, and private investors. The demand is generally concentrated in the Indian subcontinent, Turkey, and the Middle Eastern nations. Over 50% of the demand comes from the jewelry sector while industrial & dental and investment contribute to the rest. In Q308, jewelry demand constituted 58% of the total gold demand, while the remaining two categories had a share of 9% and 33%, respectively. Investment demand is other major source of demand which is more during period of uncertainty.

Although prices have increased by 8.8% on COMEX, domestic market have witnessed an increase of 11.44% as rupee depreciated by 1.52% and demand during festive season picks up. For instance, when gold reached $1033.90 levels on March 17, 2008, MCX gold prices made a high of Rs.13397 per 10 grams, while now when gold prices on COMEX are at $962.70 levels; MCX gold prices are seen quoting at Rs.15200 levels. Commodity prices in the long term generally tend move in particular trend which is observed or analyzed in order to obtain likelihood of the same. The seasonality index in this regard helps one determine and identify the periodicity of the price action. Nevertheless as truly said by William I. Tierney, Jr., Mark L. Waller and Stephen H. Amosson "Seasonals are based on past prices and may merely reflect random effects rather than any true predisposition in market performance. Also, even if seasonal patterns are well founded and appear to be statistically reliable, seasonal effects can be over-whelmed by changing fundamental (and even technical) factors."

If seen historically, gold demand during October-March is high when compared to other months, as India, the world’s largest consumer of gold; goes through the festive and marriage seasons. Demand for gold is especially more during this period as gold is regarded as an eternal
beauty by Indians. Given below is the chart showing seasonal pattern in gold prices for the period during 2002-2008.

Prices of gold started rising from the month of September, took a dip between December and January and rose again until March. Between March and September, prices have been usually on the lower side.