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The Seasonality of Gold – The Autumn Effect

Last Updated on 10 February, 2024 by Rejaul Karim

The research paper “The Seasonality of Gold – The Autumn Effect” provides an intriguing exploration of recurring annual events that potentially introduce fluctuations in gold prices. Authored by Dirk G. Baur, the research delves into an extensive analysis of gold returns over a three-decade period, uncovering a distinctive pattern wherein September and November stand out as the sole months exhibiting positive and statistically significant changes in gold prices.

This “autumn effect” persists unconditionally and even under the influence of various risk factors. Furthermore, the paper offers compelling explanations for this anomaly, linking it to investors’ hedging demand in anticipation of the “Halloween effect” in the stock market, heightened gold jewelry demand during India’s wedding season, and negative investor sentiment attributed to shorter daylight time.

Notably, the autumn effect is also marked by heightened volatility, both unconditionally and conditionally, setting it apart from other seasons.

Abstract Of Paper

This paper studies recurring annual events potentially introducing seasonality into gold prices. We analyze gold returns for each month from 1980 to 2010 and find that September and November are the only months with positive and statistically significant gold price changes. This “autumn effect” holds unconditionally and conditional on several risk factors. We argue that the anomaly can be explained with hedging demand by investors in anticipation of the “Halloween effect” in the stock market, wedding season gold jewelery demand in India and negative investor sentiment due to shorter daylight time. The autumn effect can also be characterized by a higher unconditional and conditional volatility than in other seasons.

Original paper – Download PDF

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Author

Dirk G. Baur
University of Western Australia – Business School; Financial Research Network (FIRN)

Conclusion

In conclusion, the study on the seasonality of gold uncovers a compelling “autumn effect,” with September and November emerging as the months displaying consistent and statistically significant positive changes in gold prices over the span from 1980 to 2010.

This anomaly persists irrespective of various risk factors, challenging conventional market expectations. The research provides insightful explanations for this phenomenon, attributing it to investors’ hedging demand in anticipation of the “Halloween effect” in the stock market, heightened gold jewelry demand during India’s wedding season, and negative investor sentiment related to shorter daylight time.

Notably, the autumn effect is characterized by higher unconditional and conditional volatility compared to other seasons, underlining its distinct nature within the realm of gold price movements.

Related Reading:

Flight to Gold: Extreme Weather Events and Stock Returns

Investing in Gold – Market Timing or Buy-and-Hold?

FAQ

Q1: What is the main finding of the research paper on “The Seasonality of Gold – The Autumn Effect” by Dirk G. Baur?

A1: The main finding of the research paper is the identification of a distinctive seasonality in gold prices referred to as the “autumn effect.” The study reveals that, over a three-decade period from 1980 to 2010, September and November are the only months exhibiting positive and statistically significant changes in gold prices. This anomaly, known as the autumn effect, persists even after considering various risk factors.

Q2: What are the explanations provided for the autumn effect in gold prices?

A2: The paper offers several explanations for the autumn effect in gold prices. These include:

  1. Hedging Demand: Investors may exhibit hedging demand in anticipation of the “Halloween effect” in the stock market during the autumn months.
  2. Wedding Season Gold Jewelry Demand: There may be heightened gold jewelry demand during India’s wedding season in the autumn months.
  3. Negative Investor Sentiment: The autumn effect could be linked to negative investor sentiment, possibly influenced by shorter daylight time during this season.

Q3: How is the autumn effect characterized in terms of volatility?

A3: The autumn effect is characterized by higher unconditional and conditional volatility compared to other seasons. This suggests that the distinctive pattern in gold prices during September and November is accompanied by increased price volatility, setting it apart from other time periods.

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