The phenomenon known as the 'January effect,' a historical trend characterised by a general uptick in stock prices at the onset of the year, has been a subject of examination and discourse for many years. Although its prevalence appears to be diminishing, it still manages to capture attention as a frequently searched term online, particularly during the month of January.
Similarly, investors frequently inquire about the potential seasonal influences on gold prices. In essence, gold tends to showcase favourable performance, on average, in both January and late summer. The statistical data emphasises January as the most robust month. Since 1971, gold has demonstrated an average return of 1.79% in January, nearly tripling its long-term monthly average. Over the same timeframe, positive returns in January have been observed in almost 60% of cases, increasing to nearly 70% since the year 2000.
The underlying factors contributing to this January strength are multifaceted. Analysis suggests that gold's January performance may be tied to portfolio rebalancing and a potential response to seasonal weaknesses in real yields. Additionally, the timing aligns with gold replenishment in East Asia before the lunar New Year, introducing another layer of influence.
However, it's important to acknowledge that the January effect does not guarantee an increase in gold prices every January. Several instances, including 2021 and 2022, saw deviations from this trend, particularly during periods of significant US dollar strengthening.Looking forward, the evidence points toward a positive outlook for gold in January. With the Federal Reserve currently maintaining its monetary policy, the potential substantial rise of the US dollar seems less probable. Beyond any seasonal