Gold trading has quickly become one of the most popular ways to make a play on the global economy and developing trends. Though the precious metal is often used as a part of a long-term strategy to battle inflation and store value, its prevalence as a trading instrument has surged in recent years. Many traders now use gold to make speculative bets on the economy as the metal has become quite volatile concerning news around the world [see also How to Play Schiff’s $5,000 Gold Prediction].
Finding the most profitable times to trade gold is entirely subjective; after all, there are a number of different strategies that can be utilized. But there are certainly months in which gold has been historically active, making them a prime target for traders to slice and dice the asset in whichever way the may choose. As far as bear months are concerned, October appears to be the biggest standout, as gold tends to dip in price as Autumn begins. Another weak period falls in June, where gold has historically trended downward and remained relatively flat through the end of August. Also note that the end of December and very beginning of January is typically where gold finds its bottom.
Bull months, on the other hand, are most evident in September and November. Both of these months have hosted gold’s biggest rallies in the past 15 years. Mid-January through February also see steady gains for this hard asset. What is perhaps most impressive about this chart is that overall, gold has trended straight up for the past 15 years (and more). Though there have been blips along the way, gold’s price seems to increase with each coming year. The following chart is courtesy of Signal Financial Group [for more gold news and updates subscribe to our free newsletter].
As always, historical performance is not indicative of future results, and 2012 has proven that to us, as gold has had a hard time finding its footing. The metal stuck to its historical pattern, topping out in February and dipping after, but it appears as if the metal may sink longer than its historical average dictates. With euro fears re-igniting on a weekly basis and uncertainty surrounding the Fed and their next move, gold seems to have lost its way. For those of you who buy in to the chart above, we may be nearing a perfect time to purchase gold, as the end of August seems to be a nice low before a strong rally [see also Why Buffett is Dead Wrong on Gold].
How to Play
While futures contracts are always a good option, one of the most liquid and versatile investments out there lies in the SPDR Gold Trust (GLD). This ETF, which has over $63 billion in assets and trades an average of 7.8 million times per day. Better yet, GLD has an extremely active options market that will allow for traders to make bets on where they feel GLD is headed. It would seem that calls for September/October could yield positive results if timed correctly. Note that this fund holds physical gold bullion, not futures, though it will still accurately reflect spot prices. Some investors feel that this ETF is a paper asset and that it does not actually hold gold, but for traders this fact is almost entirely irrelevant as your holding period will be measured in hours and days rather than months or years. No matter what is behind GLD, there is no denying that it is one of the most popular trading instruments available on the commodities market.
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Disclosure: No positions at time of writing.
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