Jake Bernstein on the precious metal.
 
Although many traders are bullish on gold these days, they are unfortunately unaware of the fact that gold has, for many years, being a highly seasonal market. By this I mean that the gold market has followed some very predictable (although not perfect) seasonal patterns which even through the course of this current bull market have persisted. Far too many traders engage in myths and arcane methods when it comes to trading particularly when it comes to the precious metals markets which have attracted over the years a very devoted following that can often be blindsided by unrealistic expectations.

My work has been bullish on gold for several years now and I'm glad to say that I still own gold shares as well as gold bullion coins which I purchased some time ago. This however does not preclude decisions that I make from the trading standpoint as opposed to the investing standpoint. As a trader I am interested in repetitive price patterns which have over the years been highly repetitive and very predictable. The gold market exhibits highly seasonal behavior which often results in declining prices from July through August with a very pronounced seasonal rally in September.

Given that my work is market analysis as well as in trading is highly specific and research-based, I offer the following objective assessment of the gold market which may be of value to you over the next few months. Typically gold prices tend to make their largest moves over the shortest period of time during September. Whereas we may conjecture about such moves, it is far better to offer concrete evidence in the form of historical data as follows.

The seasonal chart (courtesy of www.seasonaltrader.com) shown in figure 1 clearly indicates a period of declining prices from July through August with a pronounced seasonal move frequently coming in September. For those who are not yet in the gold market the chart suggests not chasing at this time but rather waiting until the seasonal lows.

Figure 1: Weekly Seasonal Composite Futures Chart: Oct - Gold 1975 - 2009.

Furthermore, there are specific key dates in gold futures which have shown significant consistency for many years. Perhaps the single best seasonal for the long side of gold is coming up later this year. Although I could carry on with many words of analysis about the seasonal the spreadsheet below speaks louder than anything I could say. I offer this data as objective evidence of gold seasonality.

My secondary purpose in offering you this objective assessment of the gold market is to add rationality, specificity, and operational procedures to trading. I maintain that without fully objective and specific procedures most traders will not profit in the markets no matter how fervently their beliefs may be. Belief, hope, expectations, and opinions are trumped by facts and clarity.  The very short-term seasonal trade shown in gold is only one of many gold trades with high accuracy.

By Jake Bernstein www.jakebernstein.com

 

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