Financial Post, Feb. 28, 2014:

Seasonality alone fails to account for rise in Gold prices: JP Morgan

Bullion prices are sitting at a four-month high this week, but figuring out whether this is a bounce back for the beleaguered precious metal, or just seasonal buying, is tricky.

Gold ended its 12-year bull run last year after falling 28%, taking down some big names with it. This year has been a little kinder, with gold rallying in 22 of the past 30 sessions and tacking on 10% year to date.

The first quarter has traditionally been strong for gold because of overseas demand. “There’s a well-established seasonality in the gold price which has historically been driven by Indian buying and this has often delivered strength in Q1 and Q3,” said John Bridges, precious metals and coal analyst at JP Morgan Securities LLC. “Now with China a bigger buyer, the picture is more complex.”

Gold buying ticks up in India during months when the country tends to see an increase in weddings, typically February, May and July.

That should explain why gold is doing so well in February, but Mr. Bridges notes that India’s demand has recently slumped because of the country’s high inflation and economic malaise. At the same time, China’s new year celebrations, another period of strong gold buying, peaked last month.

“With Indian imports lower and the Chinese New Year celebrations largely over, the recent strength in gold prices appears to be driven by something other than seasonality,” Mr. Bridges said.

The answer might simply be a temporary bounce after the strong sell-off last year. Mr. Bridges forecasts gold will average US$1,263 an ounce this year, below the current price of US$1,330 an ounce. Next year, he expects it to trade only slightly higher at US$1,275.