Seasonal patterns since 1971 suggested that September should have been the best performing month of the year for gold, with an average growth of just over 2% historically - but in 2021, this was not to be. Opening the month at $1,818, gold closed the month down 2.50% with the dismal seasonal price action appearing to mirror the inclement summer weather seen here in the UK. Factors including a rising US 10 year treasury bond yield, a firm US dollar, plus ongoing strength in equity markets provided strong headwinds for gold as the Fed issued a number of hawkish statements on the outlook for employment and by extension, plans for tapering.
Gold Silver Ratio
After a couple of months in the doldrums, gold often looks to silver for some price direction, but here there was little encouragement from its sister metal, which was down a significant 10.48% on the month. Reflecting the non-performance of silver, we saw the gold silver ratio rise to over 80, a 14 month high.
The expectation of a tapering in asset purchases by the Federal Reserve from the current $120bn per month during Q4, coupled with a possible interest rate rise in late 2022 has had a depressive effect on bullion markets just now, despite the fact that the Federal Reserve has more than doubled its balance sheet to over $8.5 trillion since 2020.
An Opportunity to Buy?
Short-term gold traders will have been disappointed by gold’s performance so far this year as the price is currently down 7.5%, although for many longer-term investors the dip has provided an opportunity to buy at a lower price. Encouragingly for gold bulls, there are signs that inflation may become rather more than “transitory" as the US Federal Reserve predict, with the UK posting the largest month-on-month increase since records began according to the ONS (Office for National Statistics). Traditionally, inflation has been an important driver for gold demand.
Elsewhere in international markets, there has been solid physical gold demand from price-sensitive China, where gold is now trading at $13 over global benchmark prices. Demand for gold in India was also up 658% in September, from the particularly low levels seen last year, which has been encouraged by prices hitting 6 month lows in local currency terms.
Although gold ends the month negatively on the charts, there is plenty for gold to be optimistic about; with possible economic contagion from the Evergrande default, the US debt ceiling brinkmanship and ongoing signs that the near perfect economic recovery that was arguably factored into financial markets, perhaps being a little premature. Meanwhile, supply chain problems, a possible energy crisis and a slowing economy are factors which, when combined, might well favour gold as we enter the final quarter of the year.