Gold Stock Seasonality
Some things tend to repeat themselves. Summers are almost always more warm than winters. The rainfall usually peaks during specific months of the year. Birds migrate in the anticipation of the fall. But seasonality, this inherent tendency of repetition, is not restricted to the weather or wildlife. It turns out that seasonal patterns might be seen in gold stocks.
The most prominent example is the idea of summer doldrums. It ties the changes in the activity of investors to the fluctuations in the prices of mining stocks. It goes as follows. People generally tend to wind down more during the summer. School is out, the sun typically shines more, and so this is the period when people typically plan their holidays. And when investors and traders go on holidays, they do not always keep track of the market as much as during the rest of the year and they might not trade as frequently.
This would in turn mean that, overall, there is less trading in the market and, because of that, prices do not swing as vigorously. As a result, the market would typically become more stagnant. Some people even go as far as to say “Sell in May and go away!”, suggesting to get out of the market in May and not come back until September. But is this really the case? Can one boil gold stock seasonality down to such a convenient sound bite? We have actually checked this for our investors. Take a look at the chart below displaying the annual seasonality of gold stocks. We use the the HUI Index as a proxy for gold stocks. This chart shows the calculations for the year 2018, which are based on historical data from the years 2002-2018.
Gold Stock Seasonality Chart
There’s a lot to process here but please, bear with us for a second. The most important part is the largest one with the red line reflecting the projected value of the index. This line shows how the HUI Index has behaved on average throughout the year. In other words, it shows the seasonal tendencies of gold stocks from an annual perspective.
A short glance at this chart does not reveal any readily discernible stagnation in May. So, preliminary analysis does not immediately support the notion of summer doldrums as far as mining stocks are concerned. At the same time, you can probably see other periods of the year that seem interesting, for instance as reversals or rallies. One interesting time is August when gold miners seem to make a more pronounced move to the upside relative to the preceding summer months. There’s more than that, though. Following the average appreciation in August, we see a period of deep depreciation in the September-October period. This would suggest that the beginning of September might be a time to look out for reversals.
If you are wondering, the above chart comes from one of our tools, True Seasonals. Using this tool, you can analyze not only gold and silver mining stocks but also gold itself, silver and indices. If you are curious about a specific part of the year, you can use the tool to zoom in on a given quarter or even month. The tool also gives you a measure of the reliability of its projections. The green line shows the value of Quality of Projection – our internal measure designed to show you whether the indications of True Seasonals are strong or only optional.
Hang on a sec, surely there’s more that influences the prices of mining stocks than only the part of the year we are in? You would be right to ask that question. Some precious metals investors and traders have been mystified by the trading activity around the expiration of futures and options. These dates do not always fall on the same day of the month and are typically not considered in seasonality analyses. Luckily, we have worked to include this factor in True Seasonals. So, when you are peering over the charts of True Seasonals, the influence of the expiration of derivatives is automatically taken into account for your convenience. And you can choose whether you would like to focus on the influence of precious metals futures, precious metals options or, maybe, stock options.
Of course, seasonality is only one of the aspects of the precious metals market. At times, other factors can trump the influence of seasonal trends. A prominent example is the period following the 2011 top, when the market was tense precisely at the time of the summer doldrums. It is crucial to combine gold stock seasonals with other signals, like the ones we provide in our Gold & Silver Trading Alerts.
Whenever you feel like you want to dig deeper into seasonality and look at specific parts of the year for a wide array of assets, check out True Seasonals. You can analyze the market thanks to more detailed charts which we update for you.
And if you're looking for an up-to-date and more detailed gold stock seasonality analysis, please visit the following pages in our Charts section
- HUI Index seasonality
- XAU Index seasonality