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Golden Clues and Thanksgiving Patterns

November 17, 2020, 9:43 AM Przemysław Radomski , CFA

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Just as with crude oil, the latest Covid-19 vaccine news is causing gold to teeter-totter in small and indecisive daily price swings. Almost nothing changed on the precious metals market and related markets yesterday (Nov 16th), but the key word here is “almost”. There were small changes which can act as clues - bearish clues.

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First, gold and silver did practically nothing, despite a slightly lower close in the USD Index, which is bearish. Precious metals should have moved higher given the above, and they failed to do so.

Second is the performance of mining stocks. Miners ended yesterday’s session lower despite nothing in both gold and silver, and a higher close in the general stock market. Given the above, miners “should have” done nothing or moved somewhat higher.

Miners did move higher, but only initially. They then reversed and ended the session lower. This tells us that miners don’t really want to move higher. Together with the small but still bearish indication from the USD-PMs link, this means that the implications of yesterday’s session are bearish for the near term.

Besides, that’s the third day in a row when miners started the session higher, only to disappoint and decline during the day.

Before summarizing, we would like to discuss one specific thing: gold’s performance around Thanksgiving.

Gold’s Performance around Thanksgiving

Thanksgiving is on the fourth Thursday of each November, which means that the holiday always falls between November 22 and 28. What’s usually happening to the price of gold before and after this period? Let’s check gold’s seasonality for Q4.

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During this period, gold is usually just before forming a short-term top and starting the biggest decline within the final quarter of the year.

Please note that the accuracy measure as to when the top is likely to be is relatively low, but soars right before gold’s plunge. This means that while it’s not that clear when gold is likely to top, it’s quite probable that we are going to see some kind of important top regardless of when exactly that takes place. Could it be slightly ahead of Thanksgiving? Yes. Could it be slightly after it? That’s possible as well.

But this year is not like other years, and I don’t mean the pandemic. This year, particularly this November, is special because of the U.S. presidential elections. Therefore, instead of taking into account the average of the previous periods around all recent Thanksgivings, one should focus on the Thanksgivings which were concurrent with presidential elections.

Gold and Thanksgiving during the Presidential Election Years

Let’s examine the last four cases, when gold was already after the 1999-2000 bottom and within its secular bull market.

Starting with the most recent case:

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Back in 2016, the decline simply continued after Thanksgiving, and gold bottomed in the second half of December.

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Four years earlier, in 2012, gold topped right after Thanksgiving and – just like in 2016 – it bottomed in the second half of December.

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In 2008, gold topped right before Thanksgiving and it bottomed in the first half of December.

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Finally, in 2004, gold topped shortly after Thanksgiving, and it formed an initial bottom in the first half of December. However, it then declined once again, further reaching bottom in January and February 2005 (two separate bottoms).

Consequently, Thanksgiving during the U.S. presidential election year had a bearish follow-up for gold in practically all four cases. Sometimes it was a bit early and at other times a bit late, but overall, it seems that one should be prepared for declines in the yellow metal during the final days of November and early part of December.

This pattern fits in line with my other thoughts on the gold market. As the USD Index appears to have ended forming its broad bottom pattern, it’s likely to rally, causing gold to slide. At some point gold is likely to stop responding to the dollar’s bearish indications, and based on the above analysis, we expect this might take place in December.

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Sincerely,
Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager

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