What does gold and silver hold in store for us in November? Using historical analysis of commodities can often show seasonal patterns that can be used to understand market trends. The following article will examine if there are any significant historical trends to pay attention to in gold and silver that would be key to traders and investors while understanding how these trends can play a part in the fundamental landscape of commodities. At the end of the article, we will try to gather the information into some tradeable plays.
Right now, the main driver of gold has been currencies rather than safe haven hedging. With that said, when the dollar strengthens it hurts gold, so what the market needs is something to drop the dollar or some type of "free money" incentive like QE. We don't expect any more QE any time soon, but what could be a driver would be the Euro strengthening on a European bailout of Spain or other major action. Something like that could be around the corner and seems likely by the end of November, which would drive up gold prices.
For our investigation, we looked at the average gain, the max gain vs. max loss, and the percentage of times different stocks with gold and silver exposure have increased or decreased. Our investigation covered the previous 16 years, taking into account the time the company has been on the market. The companies/ETFs covered for gold were AngloGold Ashanti Ltd. (NYSE:AU), Barrick Gold Corporation (NYSE:ABX), Goldcorp Inc. (NYSE:GG), Yamana Gold Inc. (NYSE:AUY), Newmont Mining Corp. (NYSE:NEM), SPDR Gold Shares (NYSEARCA:GLD), and Market Vectors Gold Miners ETF (NYSEARCA:GDX). The companies/ETFs covered for silver were Silver Wheaton Corp. (NYSE:SLW), Coeur d'Alene Mines Corporation (NYSE:CDE), First Majestic Silver Corp. (NYSE:AG), Hecla Mining Co. (NYSE:HL), and iShares Silver (NYSEARCA:SLV).
Below you can find the average gains for the past 16 years provided the company/ETF has been around for those 16 years.
As we can see from the chart above, November has historically been an excellent month for Gold and Silver with no company showing any negative gains and all companies showing at least a 3% average gain during the month of November. Out of the 12 companies/ETF that we analyzed, the ones with the most gains were First Majestic Silver Corp. and Yamana Gold Inc. Both had gains above 14% for the month of November. The 3.52% average gain for Newmont Mining Corp. was the worst for all companies.
Below are the max gains vs. max losses to help us know a bit better how to trade this information:
The sheer amount of blue on the chart above further emphasizes how good a month November is for Gold and Silver. All of the 12 companies analyzed had max gains that far outweighed their max losses. AG had one of the highest max gains of 55.29% which, combined with the knowledge we have of its average gains, could emphasize a bull put spread with November 17 expirations. Additionally, GLD and AUY, amazingly, have no losses of more than 5% for the month, showing further strength.
We looked at one more chart to further see the ratio of up months to down months.
Once again, AUY and GLD show very strong trends of up to down months, and we like both for trades. The trades below are developed based on the strength of these stocks, and we believe they would work because the spreads we have chosen are below the max loss for any historical period for AUY and GLD when applied to current prices. Both trades are bull put spreads that allow the trader to make money by selling premium on puts and hedging that by buying a put at a lower strike.
Trade #1: Yamana Gold Inc. , Nov17, 18/17 Bull Put Spread
Max Gain: 13%
Trade #2: SPDR Gold ETF , Nov17, 165/163 Bull Put Spread
Max Gain: 22%
(Max gains are calculated by taking the current midpoint of the bid/ask for each spread and dividing it by the difference between the higher and lower strike and subtracting out the premium being paid. For example, the current asking price is 0.10. The strikes our one dollar apart. The max gain would be 0.10/(1-0.10) for 11.11%)