Gold is now entering its very strong time of year. When you take a look at gold from the dates of December 24 through to February 19 over the last 25 years you can observe that gold has risen during that time for a a total of 18 times.
The average return has been +3.96% in profit. The maximum profit has been a whopping 14.43%. The largest loss has been a fall of -6.57 and that was during the year 1996. So, from a seasonal perspective gold is attractive. The reasons for the strong seasonality are not coincidences. Rather they are based on strong physical demand factors. China is the largest buyer of gold in front of India. In the Lunar New year there is a tradition of buying gold gifts. These gold purchases are what drives up gold prices year in year around the turn of the year.
Tonight the Fed will meet for the last time this year. If we see a dovish twist here that could well be the catalyst that gold needs to launch into a strong gain for early 2021. The Fed is limited in what it can do as financial conditions are already loose with very low interest rates. However, the Fed has the following key options it can implement to create easier conditions:
- Lengthen the maturities of the bonds.
- Expand total purchases from $120 billion a month.
- List the outcomes it wants to achieve before winding the program back.
If we see the Fed making a move here watch out for gold buyers to step in and try to hold gold longs through January.