Gold and gold mining stocks are entering a strong seasonal phase / Commodities / Gold & Silver 2020
You may have heard that gold typically rallies seasonally from themiddle of the year. This trend is driven by jewelry demand, which increasesahead of the Christmas business, the Indian wedding season and the Chinese NewYear celebrations on the back of advance purchases by jewelers, which tend to putupward pressure on prices.
But what about the seasonal trend in gold stocks? Since the earnings ofgold producers are highly geared to the gold price, a relationship should bediscernible.
Gold seasonality under the magnifying glass
First let us take a look at the seasonal chart of gold. Contrary to astandard price chart, the seasonal chart shows the price pattern of gold in thecourse of a calendar year averaged over numerous years. In this case, theaverage of the past 24 years was calculated. The horizontal axis shows the timeof the year, the vertical axis depicts price information (indexed to 100).
Gold priced in USD, seasonal pattern over the past 24 years
The gold price tends to rise from the middle ofthe year.
Source: Seasonax
As the chart illustrates, there is an interim seasonal low on July 07,which marks the formal beginning of the seasonally strong phase in gold.Briefly interrupted by a somewhat weaker phase from mid-October tomid-December, it ends on 24 February of the following year. By contrast, thegold price tends to lose ground from the end of February to the beginning ofJuly.
I have highlighted the two strongest seasonal advances with arrows. One advancelasts from the end of July to the beginning of October (arrow in the middle ofthe chart) - and this favorable seasonal trend for gold begins quite soon!
The other one lasts from mid-December (small arrow to the right of the chart)to the end of February of the following year (arrow to the left of the chart).
Comparison with the seasonality of gold mining stocks
You may be wondering why I have specifically chosen a 24-year seasonal chartof gold. The reason is that the gold mining index HUI (NYSE Arca Gold BugsIndex) begins in 1996. This start date therefore enables the longest possiblecomparison between the seasonal trends of gold and the gold stock index.
Let us examine the next chart to this end, which compares the seasonalpatterns of gold and gold mining shares. The blue area once again shows the24-year seasonal pattern of the gold price (note: the vertical scale differsfrom that of the previous chart). The red line depicts the seasonal pattern ofthe HUI gold stock index.
Gold priced in USD (blue), HUI gold stock index (red), seasonalpatterns over the past 24 years
A firm gold season underpins gold mining stocks aswell!
Source: Seasonax
First consider the two favorable phases. The currently beginning phasefrom the end of July to the beginning of October is also reflected in the redline depicting the seasonal pattern of gold stocks - their prices are rising aswell (arrow in the middle of the chart).
The same applies to the phase from mid-December (small arrow to the right ofthe chart) to the end of February of the following year (arrow to the left ofthe chart). Like gold itself, gold stocks are also seasonally strong in thistime period.
A trend reversal takes hold in phases which are problematic for gold aswell. During the lengthy time period from the end of February to the beginningof July, in which gold is seasonally somewhat weaker, the gold mining index declinesas well (blue arrow to the left).
The short phase from mid-October to mid-December is a particularly difficulttime for gold stocks. Gold barely weakens seasonally, but the mining stockstend to post significant losses. This is primarily attributable to persistentweakness in gold mining stocks in the late 1990s.
Fundamental drivers are responsible for the seasonal patterns in goldmining stocks and other equities!
As can be seen above, a strong seasonal phase for gold exerts favorableeffects on the trend of gold stock prices as well. Rising gold prices spur theimagination of investors regarding gold mining sector earnings. However, absentthese hopes about earnings prospects, gold stock prices at times suffer significantseasonal declines.
There can be many reasons for individual seasonal patterns in shareprices. Today it was demonstrated how the strong seasonal phase of the producedraw material gold affects the seasonal price trend of the stocks of goldproducers.
Naturally, company-specific drivers that have a seasonally positiveeffect on earnings expectations and hence share prices also exist in otherindustries. These may include trade fairs, which are regularly followed by anincrease in new orders, or in the case of agricultural companies, large salesvolumes ahead of the planting season – and much more. Thus there exist a greatmany more seasonal patterns in individual stock prices.
If you want to take advantage of the precise seasonal patterns ofindividual gold mining shares or other equities and/or other commodities, Irecommend visiting www.seasonax.com!
Yours sincerely,
Dimitri Speck
Founder of Seasonax and Head Analyst 90 TageTrader
PS: With the Seasonax event tool you can createyour own event studies!
© 2020 Copyright Dimitri Speck - All Rights Reserved- Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.