Gold, the "September curse"

In the upcoming month of September, gold, which is hitting record highs, faces a severe challenge.

According to media reports on Sunday, as gold investors return from the summer holidays, they will eagerly observe whether gold can sustain its upward trend or succumb to the "September curse".

Since 2017, gold has experienced a decline every September, with an average drop of 3.2%. This is undoubtedly the worst performing month for gold throughout the year, far below the average monthly increase of 1%.

It is worth noting that this phenomenon is not limited to gold: September is also typically the worst performing month for the U.S. stock market, with the S&P 500 index averaging a decline of over 1.5% in September over the past decade.

Traders Return from Vacation, Typically Sell Gold in September

One explanation for gold's weak performance in September is that traders take a defensive stance during the turbulent summer, buying gold and then selling it in September.

FastMarkets analyst Boris Mikanikrezai stated:

"Buying gold is one way to hedge risks in the market before traders leave their screens for vacation."

Analysis shows that some investors do indeed "shut down" trading during the summer, and adding safe-haven gold to their portfolios may provide psychological comfort during traditionally volatile periods. Historically, conflicts and market crashes often erupt in the summer when trading desks are short-staffed and senior management is absent, potentially exacerbating volatility.

On the other hand, when September arrives, gold faces an inherent headwind as September is traditionally the strongest month for the U.S. dollar, meaning traders using non-U.S. currencies have less money to buy gold with.

Gold has already risen by 22% this year, up 8% since July, mainly supported by strong central bank purchases, increased safe-haven demand due to geopolitical tensions, and robust purchases of physical gold bars in the over-the-counter market.

The rise in gold prices is also being driven by expectations of the Fed cutting interest rates next month. Fed Chairman Powell stated last week that it is time to lower interest rates, but the speed and extent of rate cuts may be crucial in determining whether gold can maintain its momentum. Will these tailwinds be enough to break the "September curse"?