After two months of gains it seems like gold is losing steam. Prices are moving sideways-to-down, while both the RSI and MACD indicate that strength and sentiment already began to roll over; all creating what initially seems like a bearish picture for the yellow metal.
Fortunately, a correction in the price of gold in October will not be out of the ordinary. In fact, it is probably necessary for the price of gold to correct and thereby attract those who missed the rally of August and September to enter the picture and push prices higher.
A move toward the $1725-$1735 support levels will be a decent entry point for those looking to capitalize on what is gold's best month - November. As the chart below illustrates, November has been the best month to own gold over the past 12 years, returning over 4 percent on average.
Although seasonality is not a definite indicator (the past cannot predict the future), the expansion of the Federal Reserve balance sheet by roughly $40B per month bodes well for this seasonal scenario. In addition, the conclusion of the presidential race (no matter the winner) has historically been known to remove some market uncertainty and push money into financial assets.
While the case for gold is definitely bullish, seasonality should never be used solely to make an investment decision. It is a tool and investors are strongly encouraged to utilize other tools such as technicals and fundamentals to better their odds when investing. In addition, gold stocks do not necessarily track the seasonal patterns of the actual metal, so buyer beware.