During 2011, when Gold was right at the peak of its amazing multi-year bullish trend that saw it rise in value from $300 to almost $2000 per ounce, I was having a drink with a couple of fund managers. One of them raised the subject of Gold and said what a shame it was that so many of the people you talked to with a keen interest in and knowledge of Gold were so irrational in their opinions. He gave as an example a Gold specialist he had been speaking with only that morning, who had been trying to persuade him that Gold was on its way to $5,000 per ounce. I pointed out that Gold had already risen by much more, but he just smiled at me, and as it turned out he was right. Then he went on to say something that did stick in my mind: “If you had simply bought Gold every evening, and sold it the next morning, you’d have made a ton of money. This guy proved it to me.”
Was he right?
Gold & Time of Day
We can test out this theory by performing a little experiment. Let’s calculate the average price gains or losses we would have enjoyed if we had bought Gold at different times of the day from 2001 until the end of 2016. The fund manager was using London time in his example, and we will use Universal Time (Greenwich Mean Time) which is basically the same thing.
The first test is holding Gold for a period of 4 hours. On average, Gold fell by 0.01% from Midnight to 4am. Buying at 4am, 8am, and Noon would all have produced an average price rise of 0.01%. Buying at 4pm would have produced an average price rise double that, at 0.02%. Buying at 8pm would have produced an average of no change.
So far, it would seem as if the fund manager’s statement was right at least in the sense that Gold has tended to rise towards the end of the day. Let’s take it a stage further and calculate the average of a 16 hour holding period. This would allow for Gold to be purchased at 4pm and sold at 8am, so we can really test our hypothesis with some averaged results.
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