Gold and bullion-backed exchange traded funds, such as the SPDR Gold Shares (NYSEArca: GLD), have not treated investors well this year. GLD, the largest gold ETF in the world, is down nearly 8% over the past 90 days and has bled over $1.2 billion in assets this year, but seasonal factors could allay some of the yellow metal’s troubles.
As ETF Trends reported on Wednesday, seasonal factors could bring some upside for GLD this month. In August, gold has finished in positive for four of the past five years. Gold has also produced a 6% average return over the past five years. Additionally, miners also generated outsized returns during August after recovering from a July sell-off. [August Sector Ideas]
Gold futures and physically-backed ETFs have been pressure this year amid speculation the Federal Reserve is preparing to raise interest rates, which has pushed the dollar higher. Higher interest rates would diminish gold’s attractiveness since the precious metal does not pay interest like fixed-income assets.
Timing the long gold trade based on seasonal factors is integral to the trade’s success.
“Seasonally, there is a strong price period for gold (shaded in yellow in chart below) from late August until late September or early October as demand increases when jewelers again stock up ahead of a the seasonal wedding event in India and also, when investors return from summer vacations,” according to Almanac Trader.
According to the World Gold Council, India imported 891.5 tons of gold last year while demand was 811.1 metric tons. The council believes consumption will increase to between 900 tons and 1,000 tons this year. [India Unlikely to Stem Gold’s Decline]