Month-end flows in gold trading

Month-end flows are the portfolio adjustments made by pension funds, asset managers and corporations around the end of each month, and more heavily each quarter. Funds rebalance to target weights after market moves, hedge currency exposures and settle commitments, often around the London 4 p.m. fix for currencies on the last business day.

How it applies to gold trading

These flows mostly affect currencies and equities, but gold feels them through the dollar. If US stocks rallied strongly during the month, foreign investors may need to sell dollars to rebalance their hedges, weakening the dollar and lifting gold; the reverse after a strong dollar month. Gold ETF and index rebalancing can add flows of their own.

The effect is irregular and often visible only in the last hour before the London fix. Traders who are aware of it are less likely to read an unexplained month-end spike as a new trend.

Worked example

Example (hypothetical numbers): on the last business day of a quarter, at 3:45 p.m. London time, the dollar index drops 0.3% in 15 minutes with no news. Gold rises from 4,012 to 4,024, then drifts back to 4,016 after the 4 p.m. fix. A trader who chased the move at 4,023 with a $5 stop lost $5 per ounce.

A common mistake

Treating a month-end spike as a breakout signal. Wait for the fix and the next session to see whether it holds.

See also: DXY, London fix, London close, Seasonality.

Frequently asked questions