Tendency for a given market to outperform or underperform during a given time in a year that can be profitably traded.
The seasonality phenomenon can be easily understood from its very name. It is the tendency of phenomena to occur again and again during specific periods (seasons) of time. Weather would be a good example. You can expect high temperatures during the summer and low temperature during the winter. A heavy snowfall is extremely unlikely in June (however it is still possible).
This can be easily extended to the precious metals market. Metals and stocks, on average, perform well or poorly during specific parts of the year and this behavior tends to repeat over years. Summer has been known as a weak time for gold because Indian farmers are waiting to see if the Monsoon rains will be good and bring a good harvest. In the fall, just before the Indian wedding season begins, the farmers plough their profits from the harvest into gold.
This is just one example of seasonality and illustrates that knowledge of seasonal patterns is essential for precious metal traders and investors. Just as you would not wear sandals in winter, you would not want to buy precious metals during the part of the year that prices tend to decline. Seasonality helps you identify the months when it is worthwhile to invest in gold/silver and the months when it is not that profitable.
Analysis of seasonality typically includes only the seasonal influence – the tendency of prices to behave differently during different parts of the year. However, there are recurring phenomena, that do not occur on the same dates each year or month. A good way to illustrate this would be Thanksgiving Day which is celebrated each year on the fourth Thursday in November. However, in 2011 it occurred on 24 November, in 2012 on 22 November.
Seasonal influence in not the only significant and recurring influence driving the prices of metals. There has been much argument that at least one more factor is influencing prices – the influence of derivatives (mostly options). Options do not expire on the same day each month but they expire month by month – this shows that the expiration of derivatives does not fit in the simple seasonal scheme. Derivatives expire on different days of each month, quarter and year. Because of that there is a need to adjust the basic seasonal pattern for the influence of derivatives. (So, if the influence of derivatives is strong enough to make the prices drift away from the basic seasonal pattern, you need to include the derivative influence in the seasonal pattern).
These other phenomena that influence the prices of precious metals, such as the expiration of derivatives, cannot be detected simple seasonality tools. However, seasonality corrected for the expiration of derivatives presents a more comprehensive picture of the precious metals market that the simple seasonality tool. In other words, a tool that would combine seasonality with derivative influence might be more accurate than the simple seasonal analysis. For you as an investor, it means that it might predict the market moves more precisely than seasonality not adjusted for the expiration of options.