​How To Trade Seasonal Patterns In Precious Metals, Today: Gold

Today, we want to look at one of the most interesting markets after the Fed rate decision on the July 31, and the next wave of escalation in the trade war between the US and China.

After US president Trump imposed 10% additional tariffs on Chinese goods from September onwards, China allowed the Yuan Renminbi to weaken past the psychologically important line of 7.00 per USD.

That said, chances seem high that Gold is to appreciate further in the coming weeks, since a further drop of the CNY against the US dollar should be expected, and trade tensions between the US and China will likely remain elevated.

With our midterm bullish outlook for Gold due to the fundamental picture drawn above, another bullish driver is delivered from a seasonal perspective.

Seasonal Pattern in Gold | XAU/USD

The key parameter of this seasonal bullish pattern looks as follows: between August 12 and September 05, Gold saw an average gain of 25.09 USD for 16 of the past 21 years.

In the remaining five years, Gold dropped on average only 12.40 USD, while the maximum loss was 40.68 USD and the maximum drawdown being 44.23 USD.

Trade the Seasonal Pattern: Gold

And now the key question: how could we trade this?

Here's the plan:

1. After identifying the profitable seasonal window, buy GOLD on the closing price of the starting date on August 12 (21:59 CET).
2. Identify the maximum loss within the seasonal period. Then, have a look at the daily chart and the ATR(14) indicator.
   
   If the maximum loss is above the ATR(14) reading, round it up to the next round number and use it as worst-case-stop. 
   If the maximum loss is below the ATR(14) reading, use the ATR(14) as your stop-width (rounded up to the next round number).
    
3. Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.
4. If the trade is not stopped out or it does not reach its take profit within the seasonal period, end the trade market on the closing price on September 05.

Looking at current market data, since the ATR(14) in Gold on a daily time frame is currently trading around 18 USD, while the maximum loss of the window was 40.68 USD, our worst-case stop will be placed based on a maximum loss 41 USD away from our entry price.

Meanwhile, the average gain of the seasonal pattern is 25.09 USD within this period. So, after entering the trade on the closing price of August 12, we would add 26 USD to get our take profit level.

(Click on image to enlarge)

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between May 1, 2018, to July 30, 2019). Accessed: July 30, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of Gold fell by 1.7%, in 2015, it fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, meaning that after five years, it was up by 6.4%.