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Investing in gold.

THE FRIDAY GOLD RUSH

Gold is a financial instrument, which shows a typical calendar effect. Put simply, the gold price tends to rise before the weekend. Like the majority of the market effects monitored by Investui this phenomenon is the subject of numerous studies (see table below). In their academic study  Weekday effects on gold: Tokyo, London, and New York markets the economists Yu, Lee and Shih conclude unequivocally "Friday shows positive and significant higher returns [on gold], ...".

The economists Draper, Faff and Hillier in their study Do Precious Metals Shine? An Investment Perspective come to the important conclusion that portfolios which contain gold, silver or platinum perform significantly better than standard equity portfolios.

The strategy stands out due to its simplicity: buy gold every Thursday evening and maintain the position 24 hours. Several very experienced investors and traders use versions of this strategy.

RESULTS

This chart shows the gross profit generated for clients by the Friday Gold Rush effect. In 2019 the profit amounted to € 7776 for the standard position of one future or the equivalent in CFDs.

Trading strategy Friday Gold Rush effect.

This chart shows the gross profit generated by the Friday Gold Rush effect based on a 10-year back-test. The profit is based on a position of 1 future contract or the equivalent in CFDs.
Results Friday Gold Rush effect.

To the factsheet.

WHY DOES THIS STRATEGY WORK?

Before the weekend different parties, for different reasons, buy gold. Buying gold on Thursday evening is therefore statistically interesting. Firstly, gold is mainly used in jewellery production. For security reasons, the jewellery industry works with very limited stocks. Companies tend to buy their gold on Friday for delivery during the weekend or on Monday morning. This way they have just the right amount of gold to keep all their employees active during the coming week, thereby avoiding expensive weekend work.

Secondly, gold is used by many investors as a safe haven. Gold serves as an 'insurance policy' against a stock market crash or other hard-to-predict risks. This is particularly true during the weekend when the markets are closed and risks are higher. Big investors therefore increase their gold positions before the weekend.

If there is currently an open position, it is visible in the live positions table.

WHAT YOU NEED TO KNOW

A calendar effect reported in academic papers and supported by statistical data.
Good performance since the last 20 years. Returns can be somewhat volatile.
Break-even performance in the sideways gold market (1990-2000).
High liquidity in the gold futures.
Transparent and understandable logic.

RELATED ACADEMIC STUDIES

Do Precious Metals Shine? An Investment Perspective, David Hillier, Paul Draper & Robert Faff  – Financial Analysts Journal
Weekday effects on gold: Tokyo, London, and New York markets, Hai-Chin Yu, Chang-Hwan Lee, Tung-Li Shih
An anatomy of Calendar Effects, Laurens Swinkels & Pim van Vliet – Journal of Asset Management
Do Seasonal Anomalies Still Work?, Constantine Dzhabarov & William Ziemba – The Journal of Portfolio Management
Calendar Anomalies in Stock Index Futures, Oscar Carchano & Ángel Pardo Tornero – University of Valencia