Thursday, June 20, 2024
InvestingTrading

The New Year Gold Rush

Can it be that gold has seasonal trends? Will there be a New Year gold rush? When I took the data going back many years I noticed a spike in the average price which started around the very end of December through till the end of February.

I looked at some figures I had from 2006 to 2016, calculated the average price and then plotted this on a graph.

New Year Gold Rush Average Gold Price (USD) Jan-Feb 2006-2016

In fact in the period from 1st January until the end of February the average price increase was 5.75% and occurred in 9 out of 11 years.

What about the last 5 years?

To get up to date I then took data for the last 5 years too and came up with the following.

As you can see, it didn’t work out brilliantly on average. One very poor year skewed this though!

What Other people say?

It seems that other researchers have come to the same conclusion. The following article https://vaulted.com/nuggets/does-seasonal-gold-demand-impact-performance/ shows that January is the strongest month and this returns an average of 1.90%. It attributes this rise to the ‘January Effect’ which is also seen in the general stock market.

Improving the New Year Gold Rush trade by getting in early.

Having looked at some charts I realised that just by getting in 2 days earlier on the 2nd last trading day of the year, this might improve performance. And so it did. In fact during this period it increased our average return to 6.74%.

Testing this on the last 5 years gave us the below figures.

So yes, this also improved our performance over the last 5 years to 2.35%.

If it wasn’t for 2021 the average would be very good.

Other Ideas for Improving the New Year Gold Rush trade.

As per usual several ideas for potentially improving this trade are:

  • Technical analysis such as Relative Strength, Moving Averages to time the entry and exit
  • Diversify by making multiple trades and staggering entry and exit times
  • Exiting at a target by using limits , but also minimising losses by using stops.

Other factors to consider.

When looking at whether there is likely to be an increase in gold value during this period you may like to consider how it has faired so far this year. When I looked back at the 10 year period up to 2016 and opening the trade 2 days before there were only 2 negative years. Both had had positive years on the run up, however both had negative performance in December. The 2021 trade, opening in late 2020 however saw a very positive December. A lot more research would be needed here to draw any conclusion.  

In conclusion…

The New Year Gold Rush appears to be a very common occurrence, and happens about 80% of the time, although it’s impact seems to be a little less in recent years. The expected percentages are quite low, therefore to make a substantial profit using leverage will probably be a good idea.

If you do trade, especially with leverage, please stay safe.