Remember What Happens To Gold In December

Dec. 06, 2017 11:27 AM ETGLD, IAU, PHYS, SGOL, UGLDF, UGL, DGP, GLL, GTU, GLDI, DZZ, OUNZ, DGLD, DGL, DGZ, GYEN, GEUR, GLDW, UBG, GHS, GHE, QGLDX, PHYS:CA64 Comments
Andrew McElroy profile picture
Andrew McElroy
10.54K Followers

Summary

  • If you are a gold bear at these lows you have a short memory.
  • December declines are a buying opportunity.
  • Why buyers shouldn't fear the Fed.

The market has a long memory. Unfortunately most traders have very short memories. Many are caught up in catching the next few pips and forget to set context so they can catch the next big move.

This article is a simple reminder of what often seems to happen to gold (GLD) in December.

Since 2013, every sell-off in December has led to a sizable rally in Q1 of the next year.

In 2015 and 2016 the December low also happened to line up with a Fed rate hike. The extended sell off into the hike combined with overly bearish sentiment led to significant reversals. The below chart shows gold's response to every hike in this cycle.

The response to the hikes in December 2015, December 2016 and March 2016 are comparable. June 2016 less so; perhaps the market had not sold off enough into the hike and was already too long in anticipation of a rally.

This time however, gold has sold off quite significantly ahead of the expected hike next week. It is down over 7% from the September highs and sentiment is at the opposite end of the spectrum from a few months back. Remember all the $1300 break-out bullish articles? Some of the same guys are now suggesting we sell.

Don't Fear the Fed

We have to ask why a rate hike would be bearish for gold anyway. Gold is related to many markets, but has practically no correlation to the Fed Funds Rate, at least in this hiking cycle.

If anything, it has a positive relation.

Gold correlates much more with long term rates (TLT) - shown below in red - and the Fed has very little influence over these.


Actually TLT has been ticking up in December while gold falls. Perhaps it is leading gold higher, but

This article was written by

Andrew McElroy profile picture
10.54K Followers
Independent Investor and Chief Stock Analyst at Matrixtrade.com. Trend follower and market timer. Correlations and analogues. All time frames, all instruments....wherever I see an edge, I trade it.

Disclosure: I am/we are long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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