Since mid-December, $GLD has returned 5.3%, exceeding the advances staged by most broad asset classes. We expect the move to persist over the medium-term, as gold tends to rally in the early part of the year. Looking back at the life of the SPDR Gold Trust ($GLD) — which dates back to the Fall of 2004, the yellow metal’s average (median) rate of return during the first month of the calendar is 3.8% (4.4%). This level compares to an overall average (median) monthly gain of 0.8% (0.7%). In fact, January is, by a wide margin, usually the best month of the year for gold (interestingly, February is the second-best month for gold, with an average monthly return that is more than double that of the random results). Further, $GLD has delivered positive returns in two-thirds of the last 12 completed Januarys and Februarys. Thus, returns for gold appear to be materially upwardly biased  in the first two months of the new year.

image Seasonality Chart for Gold

The seasonal bias for gold finds support from the output of our medium-term price momentum model, which seems to have bottomed the last week of 2016, and now appears set to advance through the critical zero bound. Such a move is expected to coincide with advancing gold prices into Spring.

Price and Medium-Term Momentum for $GLD

Of interest, between 1975 and the present, we have observed a statistically significant negative long-term correlation (-0.38) between monthly changes in gold prices and the US Dollar Index. In this light, the signal from our momentum work in favor of a multi-month reprieve from a rising dollar is also modestly supportive of our expectation for rising gold prices from present levels.

Changes in US Dollar Index and Gold since 1975

Our fourth exhibit features a leading Elliott Wave interpretation of $GLD’s price path that fits with the outlook indicated by seasonality and our price-based momentum work. In our estimation, the decline from  September 2011 to December 2015 marks a complete wave. If correct, the upward move since would constitute a countertrend rally that should ultimately give way to new lows (declining monthly momentum, pictured in the lower pane of our third chart suggests a longer-term bearish disposition is probably warranted). However, before $GLD resumes its skid, a wave (C) advance appears in order. The most typical A-B-C (corrective) pattern requires a print above $131.15 before GLD’s rally might stall. Beyond that, a common Elliott Wave relationship is for waves A and C of a correction to tend toward equality; equality, in this instance, points to $138 as a potential termination point.

Monthly price and momentum for $GLD, with Elliott Wave notation and labels

Wherever the rally ultimately fizzles, at present, seasonality, momentum and intra-market relationships all signal strength to come for gold, at least for the next couple of months. Nimble investors might seek to amp up exposure to the yellow metal, with the intention of unwinding the trade around April.


Stay tuned!!