Gold Trading Strategies – GLD Weekend Strategy & Swing Trading System

Last Updated on October 23, 2022 by Oddmund Groette

Gold, along with crude oil, is one of the world’s most widely traded raw materials. It is undoubtedly the most popular precious metal, both financially and culturally. But what does gold trading mean?

Gold trading is speculating on gold market prices to make a profit. This is usually done via futures, options, spot markets, stocks, CFDs, and exchange-traded funds (ETFs). Most of these trades are cash settled, and no gold bars or coins are involved.

In this article, we discuss gold and gold trading strategies. At the end of the article, we discuss several potential gold trading strategies.

What is gold?

Gold is a precious metal that is used in many different ways, including jewelry, ornaments, means of exchange, and as a store of value. Because it is frequently used to produce coins for exchange purposes, gold, together with silver, is often referred to as the coinage metal.

Gold is one of the oldest metals known to man: the Egyptians used it as early as 3400 BCE. Gold has always been associated with prosperity and beauty. During Egypt’s Pharaoh’s rule, the Egyptians would frequently gather enormous sums of gold to cover the coffin of a deceased Pharaoh.

What does gold trading mean?

Gold trading is speculating on gold market prices to make a profit. Gold trading can be done through futures, options, spot prices, shares, and exchange-traded funds (ETFs). Most of the time, no gold bars or coins are handled during the transaction, as the trades are cash settled and the traders are not interested in the physical delivery of the asset.

Given that gold is a limited resource, its price can fluctuate dramatically due to changes in supply and demand. Thus, the price usually fluctuates due to political, social, and economic unrest. It is the fluctuations in prices that traders try to profit from by either buying low to sell high or selling high to buy low.

However, gold trading is not always about making quick profits. Some trade it to hedge their positions in other financial markets, as gold is often considered a “safe haven” asset. Unlike some stock market shares, gold price is minimally influenced by political choices, interest rate changes, and general inflation. Depending on the current state of the economy, gold and other precious metals can negatively correlate with stocks and bonds. This contributes to perceiving precious metals as a safe haven for traders. When the value of their stock positions falls, some traders decide to gamble on gold trading to offset their potential losses.

Also, many people buy it as a store of value or to show status.

 How can you buy and trade gold?

There are different ways to buy and trade gold. These are some of the popular ones:

  • Gold futures: This is one of the most common ways to trade gold, whether for speculation or to get a physical asset. Futures contracts are standardized for quantity and quality, but their price is driven by market forces.
  • Gold options: Similar to gold futures, but unlike futures, there is no obligation to execute the contract. Options give the right (but no obligation) to exchange either physical gold or gold futures at a specific price on a specific date.
  • Gold stocks: You can participate in the gold market through gold stocks. These are stocks of companies that mine or process gold.
  • Gold ETFs: These are ETFs that track the price of gold by investing in a basket of gold stocks.
  • Gold spread betting and CFDs: These are two other popular ways to speculate on gold prices. They are very similar but are taxed differently. Spread betting is available among UK brokers.
  • Gold bullion: This is buying physical gold bars or coins as a store of value or to show status.
  • Spot gold: This is a popular means of getting exposure to bullion without having to take ownership of the precious metal.

History of gold trading

For a couple of thousand years, gold was generally used solely to create things such as jewelry and idols for worship, until around 1500 BC when the ancient empire of Egypt made gold the first official medium of exchange for international trade. The use of gold coins as currency became a standard across the Mediterranean and Middle Eastern regions. The Romans also mined gold extensively, and Venice issued the gold “Ducat,” which became the world’s most popular coin during the Roman empire.

Gold was used all over the world even after fiat currencies were issued by many nations. In fact, it became a reserve resource with which fiat currencies were backed. In 1946, the Bretton Woods agreement set the price of gold at $35 per ounce, establishing a gold standard and making the US dollar (USD) gold-backed.

However, the Bretton Woods system was abandoned when there was no longer enough gold to cover all the paper money in circulation. The end of the gold standard signaled the beginning of the current system of floating exchange rates. The Chicago Mercantile Market (CME) introduced futures trading in seven currencies in 1972, and the first gold futures contract was traded on the New York COMEX exchange in 1974. The 1980s saw a significant increase in over-the-counter trading in currencies and metals and the birth of online trading.

Gold trading strategies

Let’s look at some possible gold trading strategies. In our opinion, trading gold is much more difficult to trade than stocks. There are several reasons for that, and one of them is that gold is very dependent on macro news, which is random in nature. However, a few strategies have worked for a pretty long time.

Thus, gold trading strategies, or more precisely gold swing trading strategies, are rare and difficult to find. However, a gold weekend trading strategy exists in many forms. Today we backtest a trading strategy that has worked for a couple of decades: the gold weekend swing trading strategy. The strategy is long gold over the weekend and has produced decent risk-adjusted returns.

Gold has a tailwind overnight

Just like stocks, gold has a positive bias overnight. The tailwind is, of course, not consistent, but almost all the gains in gold have come from owning it overnight. This is something we have covered in this article:

GLD and the price of gold

The gold swing trading strategy in this article is performed on the ETF with the ticker code GLD that tracks the price of gold during normal market hours on the stock exchanges. The test period is from inception in late 2004 until September 2021.

For those who have access to the futures contract, we recommend testing other twists and different times of entry and exits.

Daily effects in GLD and gold

Let’s first test the daily performance of gold.

We start by testing the daily gains by investing 100 000 at the close of each day and holding until the open the next day:

Gold Trading Strategies

Number 4 means we buy at the close on a Thursday and sell at the open on Friday. This has been the best “day of the week effect”.

If we own GLD from the close to the next day’s close we get these results:

Gold Trading Strategy

Again, Thursday shows the most promise. Indirectly, we see that the intraday gain from the open to the close on Fridays is good.

Let’s test the average gain from the open to the close per day (day trades):

Gold Trading Strategies backtest

Number five shows the gain from owning gold from the open to the close on Fridays. This is the only day with a positive return despite the fact that gold has tripled in price during the test period.

The weekend effect in gold

Based on the facts above let’s test the performance of owning gold/GLD from the close of every Thursday until the close of Friday:

Gold Trading System

This gold swing trading strategy in gold produced an average gain of 0.14% and the profit factor is 1.4. In other words, not the best strategy.

If we buy at the close on a Thursday and sell Monday morning/open, gold weekend trading strategy,  we get 0.19% per trade and this equity curve:

Gold swing Trading System

This is not very tradeable either, in our opinion. The profit factor is 1.3.

However, it gets better if we include one very simple parameter:

Gold trading strategy trading rules

The equity chart above enters at the close on Thursdays and sell at the open on Mondays. The gold weekend trading strategy has produced the following numbers:

  • CAGR 6.8% (buy and hold 8.3%)
  • The average gain is 0.3% per trade
  • Exposure/time spent in the market is 21%
  • The win ratio is 60%
  • The average winner is 1.21%, and the average loser is -1.05%
  • The profit factor is 1.8
  • The max drawdown is 10.6%

We think these are acceptable numbers to trade a small position and will most likely present this edge as a monthly Trading Edge later:

If you’d like to have the Amibroker (AFL) and Tradestation (Easy Language ) code for the Gold Weekend Strategy plus the additional 70+ free trading strategies we have published since 2012, you can order it here for a small fee:

Other gold trading strategies

Swing trading gold – weekend gold trading strategy

All commodities are hard to trade and swing trading gold is difficult. Any inefficiencies are hard to find but the weekend gold trading strategy shows promise. Perhaps, if you enter the trade during the daytime and not on close, you can get a better entry. The same goes for the exit.

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