The period of seasonal strength for gold bullion has finally arrived. The average optimal time to invest in gold bullion for a seasonal trade is from July 12 to October 9. Gold bullion has gained an average of 3.63 per cent during the past 29 periods, outperforming the S&P 500 Index by 4.98 per cent. The trade has been particularly profitable in recent history, gaining in 14 of the past 17 periods for an average return of 5.44 per cent.
Demand for gold is increasing. Demand for gold jewelry, bars, and coins remains robust in mainland China, South East Asia, and India, the world’s largest consumers of the yellow metal. Demand from India normally increase prior to the traditional Diwali wedding season starting this year on October 23rd. Central banks continue to be net buyers. Planned launch of gold exchanges during the next few months, including the Shanghai Gold Exchange’s global trading platform in the city’s pilot free trade zone and the Dubai Gold and Commodities Exchange, will encourage greater international interest. Sporadic political instability in Palestine, Libya, Turkey, Syria, Nigeria, and Ukraine could prompt a ‘”flight to safety” event that encourages gold purchases. Financial instability in Europe, most notably in Portugal, also could encourage purchases.
A wide variety of gold bullion Exchange Traded Funds are available on U.S. exchanges. The most actively traded gold ETF is SPDR Gold Trust Shares (GLD). Units trade at approximately 1/10th the value of gold bullion.
Canadian investors can choose between five Exchange Traded Funds that trade in Canadian Dollars on the Toronto Exchange when considering an investment in gold bullion. Selection depends upon the investor’s investment objectives.
The most active ETF that directly tracks gold bullion is the iShares Gold Bullion ETF (CGL). The ETF is backed by physical gold bullion. Units are hedged against U.S. dollar risk. The Management Expense Ratio is 0.50 per cent.
Horizons offers four U.S. Dollar hedged Exchange Traded Funds based on gold futures contracts. The basic product is the Horizons COMEX® Gold ETF (HUG), an unleveraged unit that tracks gold futures for a subsequent delivery month. The Management Expense Ratio is 0.65 per cent.
The Horizons BetaPro COMEX Gold Bullion Bull Plus ETF (HBU) and the Horizons BetaPro COMEX Gold Bullion Bear Plus ETF (HBD) are leveraged products that track COMEX gold bullion futures contracts. The Bull ETF is designed to generate twice the daily performance of the futures contract, while the Bear ETF is designed to generate twice the daily inverse performance of the futures contract. The Management Expense Ratio is 1.15 per cent.
Horizons also offers the Horizons Gold Yield Fund (HGY). The fund writes covered call options against one third of its gold bullion positions and distributes the call option premiums as income on a monthly basis. Gold bullion positions are backed by gold bullion ETFs and gold bullion futures contracts. Estimated annual yield is 5.34 per cent. In addition, the fund offers partial participation in the trend of gold bullion. The Management Expense Ratio is 0.60 per cent.
On the charts, Gold in U.S. Dollars at $1,336 (U.S.) per ounce has developed an encouraging technical profile prior to start of its period of seasonal strength. Gold reached an intermediate low early in June at $1,240 and subsequently rallied to resistance at $1,334. Strength relative to the S&P 500 Index and TSX Composite Index has been positive during the past five weeks. Gold recently moved above its 20-, 50– and 200-day moving averages. Yesterday, Gold established an intermediate uptrend on a break above resistance at $1,334.
Preferred strategy is to accumulate gold bullion ETFs for a seasonal trade lasting until October.
Disclaimer: Comments, charts and opinions offered in this report by www.timingthemarket.ca and www.equityclock.com are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed. Don and Jon Vialoux are Research Analysts with Horizons ETFs Management (Canada) Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons ETFs Management (Canada) Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons ETFs Management (Canada) Inc.
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