The Day-of-the-week Effect in the Precious Metals Market

08 June 2022 411 4

In the previous study, the day-of-the week effect in the gold market has shown its significance: the price of gold has a clear upward trend on Fridays. This phenomenon can be explained by the pursuit of market participants to move through a non-trading period of time in protective instruments, one of which is gold.

Now let's find out how the day-of-the-week effect affects the prices of other precious metals - silver, platinum and palladium. Historically, these metals, despite their precious status, are not considered by the investment community as clearly defined defensive assets. The reason is the fairly widespread use of silver, platinum and palladium in industry, but not only as a store of value and raw material for jewelry (in the case of gold). That is, these metals in the financial markets have the status of risky assets, and this is their fundamental difference from gold.

Based on the above, the dominance of Friday as the most favorable day in the cases of silver, platinum and palladium is less likely. Let's see if the theoretical assumptions are consistent with practice.

Hypothesis

On Fridays, silver, platinum and palladium show the largest growth compared to other days of the week.

Data used

Historical data of world futures for silver, platinum and palladium.

Timeframe - D (daily).

Period - from 1990 to April 2022

There are 8,152 values in total.

Strategy

Entering the market - buying metal at the close of the previous trading day.

Exit from the market - selling metal at the close of the next trading day.

We will evaluate the results of the strategy according to the following criteria:

• The average rate of return reflects the relative change in quotations of financial instruments in percentage. A positive value of the average rate of return indicates the profitability of the strategy, a negative one indicates a loss.

The average rate of return (D) of a financial instrument is given by the formula:

D = Σ P (%) / n,

where:

n is the number of transactions;

P (%) – the percentage of change in the quotation of the financial instrument at the time of fixing the position, is calculated as follows:

P (%) = (position closing price - position opening price) / position opening price * 100%

for sell positions

P (%) = (position opening price - position closing price) / position opening price * 100%

• The total rate of return (TD) is the sum of the returns from all transactions. The greater the value of the total rate of return, the greater the profit brought by the signal during its testing period.

• Maximum drawdown (MaxDD) is the maximum loss in percentage terms from fixing losing trades for the entire testing period. The smaller the value of the maximum drawdown, the better the trading signal works.

MaxDD = | min ( DD1: DDn ) |

DDn = TDn – max ( TD1: TDn )

where:

n - the number of transactions;

D - rate of return;

TDn - total rate of return of n transactions;

DDn – drawdown at the time of closing the nth transaction;

MaxDD – max drawdown.

Analysis of the obtained results

Consider the results of the strategy for silver.

When studying the dynamics of silver prices, the result of Friday (average rate of return of 0.003%) was far from the best result among all days of the week - it was on Thursday (average rate of return of 0.064%). Wednesday also has shown a good result (average rate of return of 0.043%).

Tuesday and Friday demonstrate near-zero dynamics. And the worst result both in terms of the return and the maximum drawdown was on Monday (as in the study of gold price dynamics).

But in the case of platinum, Friday regains the status of the most profitable day - exactly on the last working day of the week the platinum has the highest return (0.036% on average). The maximum drawdown is also the best on Friday. Slightly worse results on Wednesday.

Outsiders are Monday and Thursday, and the first day of the week shows again the worst result both in terms of return (- 0.016% on average) and maximum drawdown (over 100%).

For palladium, as well as for platinum, Friday is the most successful day both in terms of average return (0.098%) and maximum drawdown (44.525%). The results on Tuesday and Thursday are somewhat worse.

On Monday and Wednesday, palladium prices feel the worst of all. Monday demonstrates again the worst result in terms of average return (0.01%), as in all previous cases with precious metals.

The best / worst day for precious metals

 Metal The best day The worst day Gold Friday Monday Silver Thursday Monday Platinum Friday Monday Palladium Friday Monday

There are 2 clear trends in the weekly dynamics of prices for precious metals:

• The best day is most often Friday (the only exception is silver, for which the best day is Thursday). Moreover, for gold, platinum and palladium, Friday is the best day of the week both in terms of rate of return and in terms of maximum drawdown.

• The worst day of the week for all precious metals is Monday. For gold, silver and platinum, Monday shows the worst result both in terms of return and maximum drawdown. Only for palladium, the worst drawdown result belongs to Wednesday.
Conclusion

Platinum and palladium have confirmed the hypothesis of the largest price growth on Fridays. In the case of silver, the best day of the week in terms of price dynamics has become Thursday.

At the same time, the day with the worst dynamics of prices for precious metals has also been revealed - in all cases, Monday has become such a day.

The effectiveness of using the day-of-the-week effect in the precious metals market has been revealed.

Detailed results are shown in the Appendix:

﻿XLSX (2.72 MB)Day-of-the-week Effect in the precious metals market.xlsx﻿