What is the Autumn Effect for Gold?

In past decades gold has experienced positive and statistically significant gold price changes in September and November. This finding was first popularized by economics and finance professor Dirk Baur. He called it the “Autumn Effect.”

His research examined daily gold returns (spot and futures) over a 30-year period from January 1981 until December 2010. The data showed that September generated an average return of 2.2% and that November generated an average return of 1.8%.

In fact, since becoming legal to own in December of 1974, gold bullion in U.S. dollar terms has risen 1.8% in September. This gain is more than four times its average return of 0.4% in the other 11 months of the year. Of course, for most investors, the only September that matters is this September. Will the trend continue?

Will the Autumn Effect Continue?

The September performance of gold has been underwhelming in recent years. The price of gold dropped in September of 2018, and 2020-2022. In 2019, gold only notched a modest gain of about 0.68%. But this doesn’t necessarily mean the Autumn Effect is dead.

The price of gold may be positioned to rise in the coming months as China’s central bank continues to add to its gold reserves. By the end of June of this year, the People’s Bank of China brought their gold reserves up to 1,926 tons, marking the eighth consecutive month of increases.

This trend is visible beyond China. India, Singapore, Turkey, and the EU have all increased their gold reserves in recent months. Even last year central banks purchased a massive $70 billion of gold. This is the highest figure since 1950. Many have cited geopolitical tensions, and global economic uncertainty as the two main reasons for such big purchases. Additionally, some speculate that emerging market banks have been buying gold in an effort to diversify away from the dollar.

What Are Possible Causes of the Autumn Effect?

Baur’s research offers no definitive explanation of the effect. However, he does offer a few theories.

First, he suggests that investors buy gold during September and November because these months have been historically weak for stocks. Consider that starting in 1975, the Dow Jones Industrial Average lost an average of 1.0% in September compared to an average gain of 1.0% in all other months. In fact, since the creation of the index in 1896 stocks have dropped, on average by 1.1% in September compared to an average gain of 0.8% during the other months. As Barron’s reports, September’s “return rank relative to the other 11 months is below average in every decade since 1900 but one.”