Misbehaving Metals In past issues of Seasonal Insights I have discussed the very odd behavior of a variety of instruments in the course of the typical week: in issue 17 the topic were intra-week moves in S&P 500 Index, and in issue 18 the no less interesting intra-week pattern in Bitcoin. In issue 22 I moved on to the “Strange Behavior of Gold Investors from Monday to Thursday”, which was followed by an examination of the associated pattern in silver a week later. The metals back when they were young. Their behavioral issues became evident at an early age already, and the passage of time has done nothing to alleviate them. Our pal palladium is a particularly obnoxious specimen, known for spending his Fridays sneaking up on and murdering unsuspecting and by now nearly extinct bears in
Dimitri Speck considers the following as important: Chart Update, Precious Metals
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In past issues of Seasonal Insights I have discussed the very odd behavior of a variety of instruments in the course of the typical week: in issue 17 the topic were intra-week moves in S&P 500 Index, and in issue 18 the no less interesting intra-week pattern in Bitcoin.
In issue 22 I moved on to the “Strange Behavior of Gold Investors from Monday to Thursday”, which was followed by an examination of the associated pattern in silver a week later.
The metals back when they were young. Their behavioral issues became evident at an early age already, and the passage of time has done nothing to alleviate them. Our pal palladium is a particularly obnoxious specimen, known for spending his Fridays sneaking up on and murdering unsuspecting and by now nearly extinct bears in cold blood with disconcerting regularity and great verve. [PT]
Several readers asked me whether a similar pattern could be observed in platinum and palladium as well. Is the action in these metals on Friday standing out, as it does in gold and silver?
Let us take a closer look.
Friday Stands Out in Platinum
Below I examine the average performance of platinum on individual days of the week. The chart shows the annualized performance of platinum since 2000 in black, and that on individual days of the week in blue.
I once again measured returns from closing price to closing price on the COMEX; thus the performance of Tuesday represents the average annualized difference between the close on Monday and the close on Tuesday.
Platinum, performance by days of the week, 2000 – 2017. In Platinum the average performance on Fridays glitters even more than that of gold.
Just as is the case with gold, Friday is the strongest day for platinum as well. Its special status is even more pronounced: on average, platinum gained 5.68 percent annualized on Fridays, while its average weekly gain amounted to just 4.72 percent.
Investors who invested exclusively on Fridays, were therefore able to book a larger profit than they would have made by holding a platinum position on every day of the week! By contrast, the average performance on Tuesdays was particularly weak, generating an average annualized loss of – 2.95%.
As an aside, the relatively close correlation between precious metals on individual days of the week is quite different from their annual seasonality. As you can easily ascertain on www.seasonalcharts.com or with the help of the Seaonax app on Bloomberg or Reuters, the annual seasonal patterns in gold differ significantly from those of the other precious metals.
The Days of the Week Under the Magnifying Glass
How precisely did these patterns behave over time? The next chart shows the return of platinum since the turn of the millennium in gray and a breakdown of the cumulative return on individual days of the week in different colors; all are indexed to 100.
As you can see, the blue line depicting the cumulative gains on Fridays rose quite steadily over many years. In the bull market phase until 2008, Monday was also still able to keep pace. The remaining days underperformed noticeably.
The red line representing Tuesdays is particularly tragic (a certain president would call it sad). At first it went sideways over lengthy time periods, then it plummeted in 2008 and has proceeded to move sideways ever since.
Clearly one would have been best served by avoiding platinum investments on Tuesdays.
Palladium Makes Even More Extreme Moves on Fridays
How does palladium compare? Similar to the first chart showing platinum, the next chart shows the annualized performance of palladium since the turn of the millennium in black, and that on individual days of the week in blue.
Palladium, performance by days of the week, 2000 to 2017. The average annualized return generated on Fridays is quite stunning.
In Palladium, the average return generated on Fridays was particularly outsized: at 8.83 percent it was more than doubled the average gain of 4.26 percent achieved over the entire week.
Investors who were exclusively long the metal on Fridays made a more than 100% hígher profit than they would have made by being invested on all days of the week – Fridays included!
With the exception of a small advance on Mondays, the remaining days on average generated losses.
The Intra-Week Pattern of Palladium under the Magnifying Glass
Of course the cumulative returns in palladium by days of the week are of interest as well. The next chart again shows the indexed cumulative return of palladium since the turn of the millennium in gray and that of individual days of the week in different colors.
Palladium, cumulative performance by days of the week, 2000 – 2017
While palladium itself rose strongly since 2000 amid quite heavy volatility, its cumulative return on Fridays alone was not only significantly larger, but involved far smaller fluctuations to boot.
What more could anyone wish for from an investment?
Addendum by PT: The Annual Seasonality of Platinum Group Metals
We recently spoke to a friend about emerging opportunities in precious metals and remembered that a very strong seasonal rally in platinum group metals starts close to the turn of the year (in fact, it is beginning right now), so we are taking the opportunity to add the annual seasonal charts of Pt and Pd to Dimitri’s report.
A word of caution: seasonal trends do not represent guaranteed outcomes. The charts below show you inter alia that there are some years in which the seasonal rallies fail to show up. Luckily the statistical probability that the seasonally strong period will do what it is supposed to do is quite high in PGMs.
This is probably due to the fact that these seasonal trends are mainly driven by purchases from industrial users – and these tend to occur regardless of the overarching trend. Their effect will tend to be magnified in bull markets and dampened in bear markets, but it will almost always be felt, not least because Pd and Pt are relatively small, illiquid markets.
Below are charts of the 15-year seasonal patterns in platinum and palladium – note that they don’t differ much from the 20 and 30 year versions. We have shifted the charts a bit – they don’t begin at the start of the year, but a little earlier – the turn of the year is marked by the bright green vertical line. We have highlighted the seasonally strong period on the charts, which begins right now in both metals.
The 15-year seasonal chart of platinum. The strong seasonal rally period begins on December 23 and ends on March 02. Look closely at the statistics (the figures all refer exclusively to the highlighted time period!): the rally appeared in 14 of the past 15 years, and produced an average gain of 11.91% or 81.39% annualized. Looking at the detailed pattern returns at the bottom of the chart, we can see that there was one large outlier year which generated a profit of more than 46%, which skews the averages a bit – but even the years in which the gains were smaller in most cases produced quite noteworthy rallies, definitely worth considering from a short term trading perspective. [PT] – click to enlarge.
Palladium outshines platinum in the annual seasonal sweepstakes as well, as it produces a roughly similar average gain in an even shorter time period (note though that while Pd looks technically stronger and more convincing than Pt this year, it is by now also quite overbought relative to Pt):
The 15-year seasonal chart of palladium – the rally starts today (Dec. 21) and ends on February 19. As you can see, Pd has more losing years than Pt (3 against 1) in the 15 year period. This is mainly a reflection of its greater volatility and is offset by the average gains in profitable years being larger than in Pt. Obviously the rallies are on average much larger than the declines. If one were to play these odds by religiously taking a position in the seasonally strong period every year, and perhaps add a fairly tight stop to mitigate the effects of the occasional losing year (there was only one losing year with a large high single digit loss), one would accumulate a very large profit over time. Note that the cumulative profit line at the bottom to the left reflects the return of an unleveraged position in the spot market! [PT] – click to enlarge.
We hand the mic back to Dimitri:
Take Advantage of Statistical Anomalies in Precious Metals and Other Instruments!
As the study clearly shows: statistical anomalies with respect to the performance on specific days of the week are quite pronounced in the platinum group metals as well. As a trader, investor or dealer, you can exploit these and many other similar anomalous patterns.
Either visit my free-of-charge web site www.seasonalcharts.com or call up the Seasonax app on Bloomberg or Thomson-Reuters. There are never any guarantees in the markets, but you can certainly let the probabilities work in your favor!
Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com, which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix method in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange. For in-depth information on the Seasonax app click here (n.b.: subscriptions through Acting Man qualify for a special discount! Details are available on request).
Charts by Seasonax
Chart and image captions and addendum by PT