With gold posting its twelfth consecutive year in its current bull-run it may seem like an easy decision to invest in gold, but the question isn’t exactly if, but when to buy gold bullion?
New research from The Real Asset Company finds that Q1 is the best time to watch the gold price make gains from month to month, which suggests the end of December or right at the beginning of the year are the times to get on the gold investment band-wagon.
Not ‘if’ but ‘when’ to invest in gold
According to World Gold Council data, it is estimated that in the UK alone 600,000 people will be looking to invest in gold, for the first time, over the next 12 months. So we thought we would try and give some helpful advice as to what to look out for in gold price action in 2013, based on the last 12 years.
We looked at the gold price action since 2000 and how it changed from month to month, hoping it would give us some indication as to when is best to invest in gold. We looked at the percentage change in the month end gold price, month to month, across three major currencies – the US dollar, the British pound and the Euro.
We can see that there are some clear months when the gold price, on average, appears to perform weaker than other months.
From the graph above we see that across all currencies December, or the beginning of January, is most likely to be the best month to buy gold bullion, regardless of which of these currencies are chosen. On average the month-end gold price decreases by 0.4% compared to November, but increases by 2.5% and 2.1% in January and February respectively.
Months when we see the worst price performance are July and October, the only two months where there are simultaneous decreases in the gold price at month end across all currencies.
It is unsurprising that October is a bad month for gold (but a good month for gold investors); gold’s track record for the Halloween month is a bad one. For instance, between the mid-1970s and 2011, the London PM fixing price for October fell by 0.9% on average compared to a 0.6% gain in other months. This often blamed on the brutal behaviour of stocks in the same month and the slowdown in gold buying before the Asian wedding season.
July’s overall poor performance is most likely thanks to quiet summer months. Central banks, governments and banks are slowing down for their vacations, not wanting to shake things up too much. The Summer Doldrums are something often referred to by analysts, seen before the gold price makes a run for it in the autumn months. For the last two decades, gold investment by UK investors in July has paid off, with average return of 13.5%.
This was of course not the case in July 2011 when debt ceiling negotiations heated up, this event saw an increase in the average gold price of 8.2%, 5.8% and 9.1% in the USD gold price, GBP and EUR respectively.
The US Dollar shows the most consistent price gains for the first half of the year.
We can see that when priced in USD the increase in the gold price from October to November is quite significant, as it is with the other currencies considered. This is unsurprising given the increase in Asian demand at this time for gold jewellery and other investment items ahead of the wedding season.
This trend is reflected across all currencies, however it is in the British pound that the November price increase is the strongest, 4.9% compared to 4.0% in the USD gold price and 3.5% when priced in Euros.
We find in our graphs that the Euro gold price is the most temperamental of the three selected. Once again, this should come as little surprise to readers.
Charts to plan your gold investments by?
It’s important to remember when making ready to invest in gold that these are average price movements which show a trend in each month. However, there are of course some months when the gold price behaved differently to the same month in previous years. For instance, between 2001 and 2008, the June average USD gold price suggested this was one of the best times to buy as it showed the lowest rate of return. In the last 4 years however this has changed.
This perhaps shouldn’t be a chart to plot your gold investment strategy, but instead an indicator to spot those months when the gold price falters and is weak.
The decision by an increasing number of gold investors, both old and new, to cost-average their gold investments each month still appears to be the most sensible one. Until currencies are no longer being devalued, until real rates of inflation stop creeping up, until government’s financial crisis spending has a long-term impact, until a true economic recovery takes place and until everyone knows their money is safe in a bank any month will be just fine to invest in gold.
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Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.