Christmas/Santa Claus Rally in Gold and Gold Miners: Seasonality, Rules, Backtest and Performance Analysis

Christmas Day is one of the federal holidays in the US. It’s a well-known “fact” that there is normally a Santa Claus rally in stocks, but do we see the same tendencies in the gold price? Is there a Christmas/Santa Claus rally in gold and gold miners? Is there an end-of-year rally? Let’s find out:

Since 1980 gold has performed well over the Christmas holiday season. Thus, we can argue there is a Christmas/Santa Claus rally in gold. There is also a very strong performance for Gold miners during the Christmas period.

This is a typical seasonal we cover in our Daily Trading Edge. You try it for 1 USD for a month! Please read more about our different memberships.

Let’s go on to see how gold performs during the last days of the year:

The Christmas holiday

It was not until 1840 that celebrating Christmas became widespread around the world. Even later, in 1870, December 25 was declared a holiday in the US. Since then, Christmas Day has always been a federal holiday in the US. Also, the 24th of December is now a day when most markets close earlier.

For decades the Christmas holiday has been a strong period for stocks, but let’s look at how the gold price has fared during this season:

Santa Claus rally in gold?

Let’s go on to backtest to find out if there is a Santa Claus rally in gold. We make the following trading rules:

• We buy gold at the close of the OPEX day in December (the third Friday of the month); and
• We sell at the close of the last trading day of the year.

(OPEX day, which is the monthly options expiration, happens on the third Friday of the month.)

If we backtest back to 1980 we get the following equity curve:

As you can see, the Santa Claus rally has been strong all the way back to at least 1980. The average gain per trade is 1.05%. The win rate is 65% – please read more about the win rate trading).

Santa Claus rally in gold miners?

Gold has performed well during Christmas, but what about gold miners? Let’s find out:

First, we backtest the HUI index (Gold Bugs) because it has a long history, even though this is just a cash index anis not tradable. We use the following trading rules:

• We buy on the third Friday of December; and
• We sell at the close of the year (it performs better if we hold for one more day).

We get the following equity curve from 1996 until today:

The average gain is 2.85% per trade and the win ratio is 71%. We don’t have data before 1996, but we know it has performed well since 1957. In other words, the Santa Claus rally for gold miners has been pretty consistent for a long time.

GDX, the very liquid ETF that tracks gold miners, has had the following performance from 2006 until today:

The average gain has been 3.24% and 78% winners.

Holiday effects and seasonal anomalies in the markets

We believe seasonality trading is a rational approach and we have previously covered all the US stock market holiday seasonality effects in trading. To sum up, we have the following other holiday effects in the US markets:

• The Martin Luther King Jr. Day holiday effect in trading (Backtest and strategy)
• George Washington Day/President’s Day holiday effect in trading (Backtest and strategy)
• The Easter Holiday effect in trading (Holy Thursday – best day of the year for stocks? Backtests and strategies)
• The Memorial Day Holiday Effect In Trading (Backtest And Strategy)
• The 4th of July Holiday Effect In Trading (Independence Day Effect – Backtest and strategy)
• The Labor Day Holiday Effect In Trading (Backtest And Strategy)
• The Thanksgiving and Black Friday effect in the stock market (Backtests and strategies)
• The End Of The Year Rally In Stocks (Santa Claus Rally/Effect Strategy)

Click here for a full list of our seasonal trading strategies.

List of trading strategies

Since we started the blog in 2012 we have written over 1500 articles. Plenty of those articles contain specific trading strategies that have trading rules and performance metrics.

We have compiled many of those into a package of code that you can order. We have thus far over 160 different strategies in our compilation. The strategies are taken from our list of best trading systems. The strategies are an excellent resource to help you get some trading ideas.

The strategies also come with logic in plain English (plain English is for Python traders and backtesting).

For a list of the strategies we have made please click on the green banner:

These strategies must not be misunderstood for the premium strategies that we charge a fee for:

The Santa Claus rally in gold (end of year rally/effect) – conclusions

Most holiday periods show positive performance in the stock market, but the Santa Claus rally in gold has lately been on a roll. The end-of-year effect/Santa Claus rally in gold is no myth!

FAQ:

What is the Santa Claus rally in stocks, and does it apply to gold prices?

The Santa Claus rally is a phenomenon where stock prices tend to rise in the last week of December. In the case of gold, there is indeed a Christmas/Santa Claus rally, and the performance has been strong since 1980. Gold has historically performed well during the Christmas holiday season, indicating a Christmas/Santa Claus rally.

How about the performance of gold miners during the Christmas period?

Gold miners, represented by the HUI index and GDX ETF, have shown average gains of 2.85% and 3.24%, respectively, with win rates of 71% and 78%. The trading rules involve buying gold at the close of the OPEX day in December and selling at the close of the last trading day of the year. The average gain per trade is 1.05%, and the win rate is 65%.

How does gold perform during the Christmas holiday season?

Gold has historically performed well during the Christmas holiday season, indicating a Christmas/Santa Claus rally. Gold’s performance during the Christmas holiday season is characterized by a noticeable upward trend, commonly referred to as the Christmas/Santa Claus rally. This phenomenon is observed in the price movement of gold, and historical data since 1980 supports the idea of a positive trend during this period.