Seasonal Sector Trades: Thanksgiving Gives Gold A Boost & Long Bond Poised for Further Declines
By: By Christopher Mistal & Jeffrey A. Hirsch
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November 10, 2015
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Gold prices tend to move up prior to the holidays, and the trend has worked especially well over the last 15 years. Seasonally speaking, it is best for traders to go long on or about November 18 and hold until about December 3. Over the last 40 years, this trade has worked 22 times for a success rate of 55.0% .The cumulative profit tallies up to $25,990. Up until two years ago this trade had been profitable for 12 straight years (2000-2011). The longer-term history of this trade is not as good, nonetheless profitable. Gold has had another tough year, but this is a short-term trade and gold has become oversold and appears ready for a bounce. 
 
[Long Gold Trade History]
 
The chart below shows the correlation between gold and the exchange-traded fund SPDR Gold (GLD). This fund’s single holding is physical gold bullion. GLD currently holds 666.11 tons of gold giving it a market valuation of approximately $23.28 billion. GLD’s price line has been overlaid on the front-month gold futures contract. The line on the bottom section is the 40-year average seasonal price move for gold with the yellow shading highlighting seasonal strength from mid-November to mid-February. This trade targets the beginning of this seasonal move that typically peaks the first week of December. Last year, this trade was successful as gold bounced in early-December and eventually peaked in late-January.
 
[Gold (GC) Weekly Bars and Seasonal Pattern since 1975 and SPDR GOLD (GLD) Weekly Closes]
 
In the next chart, GLD is plotted above its stochastic, relative strength and MACD indicators. All three of these indicators are at or just off of oversold levels while GLD is trading right around its multi-year low reached in July. GLD is attractive at its current price with a buy limit of $104.50. Once a position is established, a stop loss of $99.90 is suggested. This trade will be tracked in the Almanac Investor ETF Portfolio.
 
[SPDR Gold (GLD) Daily Bar Chart]
 
30-Year Treasury Bond Can Freeze Up in Winter
 
Typically, we see a seasonal tendency for 30-year Treasury bond prices to peak in mid-November to mid-December and then start a decline lasting into April (highlighted with yellow box below). Perhaps investors seeking a higher return feel more comfortable buying into the year-end stock market rally, so they sell bonds and reallocate funds into equities. Or perhaps end-of-year window dressing or savvy traders, wishing to take part in the up-coming January effect, play a role in the decline of bond prices.
 
[30-Year Bond (US) Weekly Bars and Seasonal Pattern since August 26, 1977]
 
In any event, this trade in the last 37 years has just a 50.0% success rate. This trade’s shorter-term record is even weaker with six losses and just two wins since 2007. Bonds have been in a bull market for nearly four decades. Losses in 2007 and 2008 were the result of recession and financial crisis. In 2011 and 2012, the Fed took action to drive longer-term interest rates lower (bond prices higher) and Europe’s debt crisis triggered a flight to safety as well. In 2013 and 2014, tepid global growth and signs of deflation strengthened demand. Now the Fed’s next move is to raise interest rates. Even though the Fed will only be directly changing the Fed Funds rate, higher short-term interest rates usually translate into higher long-term rates and lower bond prices for existing supply.
 
[Short 30-Yr Treasury bond Trade History]
 
Traders may consider shorting the exchange-traded fund iShares Barclays 20+ Year Bond (TLT) or trading its put options as a replacement for the futures contract. TLT recently broke down through support at its 50- and 200-day moving averages and projected monthly support (green dashed line) at $120.60. Stochastic, relative strength and MACD indicators are all negative. TLT could be shorted near resistance at $122.59 or on a break down below $118. If shorted, set a stop loss at $125.75. This trade will also be tracked in the Almanac Investor ETF Portfolio.
 
[iShares Barclays 20+ Year Bond (TLT) Daily Bar Chart]