December foreign exchange seasonals: What’s scorching, chilly and gold within the month of December

The hours of November trading are ticking down but jingle bells are ringing in the distance. That means that December trading is on the way and it’s the most wonderful time of the year for bulls.

Risk assets tend to do well in December but for stocks, the period late in the month (after Christmas) tends to be strongest. That’s particularly true in poor years as tax-loss selling hits in the first 20 days of the month. That’s certainly not the case in 2024 as it’s been a banner year for equities.

Since 1950, December has been the strongest month for the S&P 500, averaging a gain of 1.2%, though that effect has diminished in the last 25 years.

Here are some seasonals to watch:

1) Gold

I have written about gold seasonal strength in December-January for 15 years and it’s rarely let me down. It’s one of the best seasonal trends in any market, anywhere. Gold is finishing November near $2650 in what’s the first negative month since June, when it was down a single dollar. To find any kind of meaningful decline before this month, you need to go all the way back to September 2023. It’s been a remarkable run for gold and the trend is your friend.

2) Dollar weakness

December is the worst month for the dollar this century. The Dollar Index declined in six of the past seven years in December with the lone exception being a tiny decline in 2021. That’s an impressive statistic given the dollar bull market we’ve been in. The recent pullback in the dollar has been a bit of a mystery but part of the solution could be the front-running of year-end repatriation flows. In terms of fundamentals, the focus will be on whether the Fed cuts on December 18 — my bet is they will.

3) Euro strength

This isn’t a surprise given the weakness in the dollar index but it’s worth emphasizing given how hated the euro is right now. I’m sympathetic to the euro bears and a 50 basis point cut in December would certainly give them firepower. That said, the euro is hated so there might be room for a relief rally. If so, anything close to 1.10 would be a tempting spot to sell.

4) Kiwi the winner

December is the best month of the year for the New Zealand dollar as the summer sun shines in the southern hemisphere. The RBNZ this week delivered a less-aggressive rate cut than feared and that might hint at a stronger economy. In any case, there is also some technical backing here as NZD/USD has helped above the 2023 lows.

5) International stocks

It’s worth noting that while the S&P 500 has done well in December, international stocks tend to outperform. It’s a particularly strong month for Chinese stocks, which have struggled to maintain gains since late September. The Japanese Nikkei 225 is also a standout performer.

Note that many of the seasonals trends in December (including stocks) tend to reverse in January so consider taking profits late in the month.

Here is a recap of the November seasonals, which fared well.