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Seasonal Trade in Gold

08/15/2016 9:00 am EST


Jeffrey Hirsch

Editor-in-Chief, The Stock Trader's Almanac and Almanac Investor

Historically, there is a strong price period for gold from late August until late September or early October, states Jeffrey Hirsch, editor Stock Trader's Almanac.

During this period, demand increases as jewelers again stock up ahead of the seasonal wedding event in India and also, as investors return from summer vacations.

Entering long positions on or about August 26th and holding until October 1st has worked 23 times in the last 41 years for a success rate of 56.1%.

In the 19 years since 1996, this trade has been profitable 13 times with a cumulative potential profit of $17,550 per single futures contract. 

Sizable losses were suffered in 2011, 2013 and 2014; however, this trade’s best performance ever was in 2012.

In recent years, gold’s seasonal strength has begun earlier; in late July or early August and finished sooner; sometime in September to early October. Last year’s trade would have been profitable with an earlier entry and/or earlier exit.

Gold has rallied about 30% year-to-date after hitting multi-year lows late last year. This rally would suggest that golds multi-year bear market that started in September 2011 is over.

Negative interest rates and continued monetary stimulus from many of the world’s central banks are also adding to gold’s appeal. Just today the Bank of England (BOE) cut its key lending rate to a record low of 0.25%.

The BOE also announced plans to expand purchases of corporate and government bonds. Global growth concerns and the safe-haven trade are also supporting gold’s price.

SPDR Gold (GLD) is an easy and cost effective way to execute this trade. It has over 31 million ounces of gold worth over $42 billion backing it and typically trades in excess of 10 million shares daily.

Stochastic, relative strength and MACD indicators applied to GLD are all positive. GLD can be considered on a breakout above $131.75 or on dips below $128.85. If purchased, an initial stop loss of $115.50 is suggested.

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By Jeffrey Hirsch, Editor Stock Trader's Almanac

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