Historically September is the strongest month for gold. Let’s look at the performance numbers and how the ARTAIS seasonal strategy takes advantage of this trend. (Flickr/shine_blitz_on)
Gold Prices In September:
Gold prices have started to rise again. This is no surprise as September is historically the strongest month for gold, in terms of price performance.
Since 1980 gold has averaged a gain of 1.7% during the month of September, making it the best month of the year for the metal:
ARTAIS Seasonal Strategy:
Of course, this data lines up nicely for the seasonal model that is used in the ARTAIS Spoke fund. The strategy (1/3 of the fund invests in the seasonal strategy), recommends buying and holding gold for the month of September. The rules for the seasonal strategy are as follows:
Invest in the technology sector at the close on the last trading day of October. Sell investments in the technology sector at the close on the last trading day of January.
Invest in the energy sector at the close on the last trading day of January. Sell investments in the energy sector at the close of the last trading day of May.
Hold cash (or money market) during June, July and August.
Invest in gold at the close on the last trading day of August. Sell gold at the close on the last trading day of September.
Stay in cash during October.
Let’s Backtest The Seasonal Model:
How does this strategy actually perform? Using Amibroker, I added the rules above, and to make things simple I used mutual funds to represent each category (In ARTAIS I use only ETFs):
Technology – “FSPTX” Fidelity Select Technology
Energy – “FSENX” Fidelity Select Energy
Gold – “FSAGX” Fidelity Select Gold
For cash/money market, I used 0% interest rate since the rates fluctuate over time and can enhance the returns when rates are high (the 1980′s for example).
The Fidelity Select Gold didn’t start trading until 12/16/1985, so I will use 1/1/1986 as our start date:
Annual Return 22.63%
Ulcer Index 9.33
Sharpe Ratio of trades 0.99
Avg. Profit/Loss 7.95 %
Pretty impressive results for a strategy that only trades a few times per year.
One Last Note:
The seasonal model I use in the ARTAIS Spoke Fund is based on research I came across back in 2005 by Jay Kaeppel.
Jay also has a great book that goes into detail on various seasonal trends - Seasonal Stock Market Trends: The Definitive Guide to Calendar-Based Stock Market Trading