Knowing seasonal trends is an important aspect of successful investing. Knowing what is ahead of the curve is analogous to avoiding unnecessary risk.
November is an important month for gold and specifically those companies who mine the precious yellow metal, whether it be religious festivals in India (world’s largest buyer) or increased demand from Russia as they diversify foreign reserves.
Over the past decade gold demand has tended to increase this time of the year and this increased demand has stoked the investment returns of those companies engaged in the extraction of it.
As the table below illustrates, November is by far the most compelling month to be exposed to this sector, as the Market Vectors Gold Miners ETF
(NYSEARCA:GDX) and SPDR Gold Trust ETF
(NYSEARCA:GLD) handily outperform investment returns for other months of the year. Silver or the iShares Silver Trust
(NYSEARCA:SLV) also get into the act as November is the second best performing month for SLV components.
From a contrarian perspective, and also noteworthy as tailwind for the GDX, is the elevated level of short interest on the exchange traded fund at this time.Total short interest on the GDX is at 20-month highs as short sellers bet against the ETF. Any covering from this bearishly positioned group could provide additional buying demand in addition to the seasonality concerns cited above.
An additional layer of support in the near term (ideal entry point) for a GDX trade appears to be just above 50, as this level is home to the peak November Put Open Interest at the 50 strike. Oftentimes, inordinate levels of open interest tend to act as either support (puts) or resistance (calls).
This article by Chris Prybal was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.