Gold Approaching Weak Seasonal Period 

Gold hit a 11-month high on Tuesday, and is now trading only 1.2 percent away from its 52-week high of $1,352.74 per ounce touched on September 7 last year.

Amid the recent geopolitical tension between the U.S. and North Korea, the price has run up nearly 5 percent in the last eight sessions. Gold has rallied from $1,200 since July this year, returning more than 10 percent in less than two months.

The seasonality chart below suggests gold might be headed for some weakness in the coming months. Since 2013, gold delivered negative monthly returns in 13 out of the 16 months in the September to December period.

That's about technical factors, but what are the fundamentals suggesting?

The seasonal pattern is likely driven by Indian consumers' buying behaviour. Not surprising given that in the first quarter of 2017, India accounted for a little over a fifth of world jewellery demand, as per the data released by the World Gold Council.

The peak buying season in India is between September and early November on account of buying for Navratri, Diwali and the wedding season that follows. Wholesale market activity logically takes place ahead of the busy season when jewelers are busy stocking and manufacturing. That explains why price action peaks by end August or early September.

The buy calls given by most commodity brokerages this September can partly be attributed to geopolitics. However, traders are looking for more indicators to determine the durability of the uptrend.

If the recent seasonal pattern breaks, this could be one such cue. Analysts suggest that the seasonal trading pattern is dynamic and the shift often corresponds with a long term trend reversal.

So the bear phase between 2011 and 2016 may reveal a different seasonal pattern compared to the preceding five years period between 2006 and 2011 when markets were in a strong uptrend before gold hit an all-time high of $1,950. Since 2006, gold delivered positive monthly returns in 13 out of the 20 months in the September to December period.

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