Trading Gold Seasonality: Find out when the best months are to own gold.
Many investors and traders are surprised to find out that gold is a seasonal commodity. For various reasons, notably the wedding season in India, there are repeatable patterns that occur annually that can help you time your trades for more precise entries, as well as tell you when to sell your position to take profits.
Seasonality is an amazing tool to add to your belt when you are trading gold, whether it is as an investor or swing trader.
Trading Gold Seasonality: What are the best months to own gold?
From a statistical standpoint, the month of September yields an average return of over 1.70% between 1980 and 2011. On the right side of this chart, we can also see that the month itself has a positive return over 98% of the time!
The next two best months for trading gold and owning the metal are July and November. The worst gold seasonality months are February, March and October.
It is very important as a trader and investor that you are familiar with the seasonal strength of an asset, so you are prepared to take advantage of price moves and know when to exit positions to maximize your profits and probability.
Trading Gold Seasonality: Adding an indicator to your charts using TradingView
While it is very important to know seasonal patterns and averages over a 30+ year period, one should also keep in mind that an average is by definition a smoothed out approximation of the past. By no means does it mean that every single year has to adhere to seasonality to the same degree, but there is a strong tendency for the price of gold to stick to the script.
Another way to track seasonality is to be able to plot it directly on your trading chart, so you can overlay the price and seasonal trend for direct comparison.
Our favorite indicator for trading gold on TradingView is: “5 Period Cycle Seasonality”
If you are unfamiliar with TradingView, it is hands down the best online charting software you will find. Check it out here – promise you’ll love it as much as we do.
Once you load this indicator on your charting software, you will see it appear as an overlay on your price pane and it should look similar to the image below:
Trading Gold Seasonality: How to use the indicator?
The TradingView gold seasonality indicator is showing the average price movement during each day of the last five years.
Now let’s assume we bought gold in January, expecting the price to appreciate an average of 0.5%, as it has in the past 30 years approximately 60% of the time (from the first chart). When would it be wise to exit the position or to at least lock in some of our open profits?
From the same chart above, you can see that February and March are the worst two months for trading gold to the upside. From our TradingView seasonal chart, we can further see that in the past 5 years, on average, the price of gold has nose dived in late February and early March.
At this point, we would have enough reason to make an educated decision to lock some profits, or even close our entire long position and avoid the statistical probability of losing our gains.
Looking back at the price action of 2016 and so far in 2017, and comparing it to the seasonality chart on TradingView, you can see that even though they do not correlate perfectly, there is a very strong consistency in the trend.
Trading Gold Seasonality: Does this mean I should avoid trading the negative months?
No! In fact, depending on how actively you are trading gold, negative seasonality is a great time to consider trying some short setups. You can achieve this by trading gold futures, or using an inverse ETF like ‘GLL’ or ‘DZZ’.
In fact, another way you can make money trading gold on the downside is to purchase put options, which are a more sophisticated trading vehicle but can significantly increase your profits while simultaneously limiting your risk.
If you would like to learn how to trade options, we have the complete training package available for you. Click here to read more about trading options.
Trading Gold Seasonality: Conclusion
There is no perfect time to buy or sell anything, in fact, when a trade seems too certain and like a sure thing, it will most likely not work. This is the dynamic of the market in 2017, and with all of the electronic trading and algorithms, that won’t change anytime soon.
As traders and investors, the most that we can do is ensure that our trading is going with the momentum and seasonality, and we are not spending too much time, energy or money fighting the trend. Use this seasonality tool for trading gold and you’ll be trading with the smart money and professional traders.
It has certainly worked for me, and has be the sole reason I closed my long gold position last week with over $3,200 profit USD in three weeks, with just $5,000 capital.
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The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.