Gold Stocks' Winter Rally 2024 / Commodities / Gold & Silver Stocks 2024

The gold miners’ stocksare heading into their winter rally, when strong seasonal tailwinds help boosttheir advances.  This is especiallypronounced when gold stocks’ primary drivers of sentiment, technicals, and fundamentalsare bullish, which is certainly true today. This sector is nearing a psychological tipping point of surgingpopularity, making secular breakouts, and earning record profits fueled bythese record gold prices.

Seasonality is the tendency for prices to exhibitrecurring patterns at certain times during the calendar year.  While seasonality doesn’t drive price action,it quantifies annually-repeating behaviors driven by sentiment, technicals, and fundamentals.  We humans are creatures of habit and herd, whichnaturally colors our trading decisions. The calendar year’s passage affects the timing and intensity of buyingand selling.

Gold stocks display strong seasonalitybecause their price action amplifies that of their dominant primary driver,gold.  Gold’s seasonality generally isn’tdriven by supply fluctuations like grown commodities see, as its mined supply remains relatively steadyyear-round.  Instead gold’s majorseasonality is demand-driven, withglobal investment demand varying considerably depending on the time in thecalendar year.

This gold seasonality is fueled bywell-known income-cycle and culturaldrivers of outsized gold demand from around the world.  Gold’s biggest seasonal surge of all is justgetting underway heading into winter.  Asthe Indian-wedding-season gold-jewelry buying that normally drives this metal’s big autumn rally windsdown, the Western holiday season ramps up. The holiday spirit puts everyone in the mood to spend money.

Men splurge on vast amounts of gold jewelryfor Christmas gifts for their wives, girlfriends, and daughters.  The holidays are also a major engagementseason, with Christmas Eve and New Year’s Eve being two of the biggest proposalnights of the year.  Something like athird to half of the entire annual sales of many jewelry retailers come in November and December!  And jewelry historically dominates overallgold demand.

The World Gold Councilclosely tracks global gold supply and demand, publishing the latest data eachquarter.  During the last five calendaryears, jewelry demand averaged 42% of overall total world golddemand.  That is much larger thaninvestment demand, which averaged 26% during that same 2019-to-2023 span.  In the WGC’s latest 2024 data current to Q3,jewelry demand is tracking a similar 40% year-to-date.

The usual frenzied Western jewelry buyingheading into Christmas shifts to pure investment demand after year-end.  That’s when Western investors figure out howmuch surplus income they earned during the prior year after bonuses andtaxes.  Some of this is plowed into goldin January, driving it higher.  Finallygold’s big winter rally climaxes in late February on major Chinese New Yeargold buying flaring up in Asia.

So during its bull-market years, gold hasusually tended to enjoy powerful winter rallies driven by these sequentialepisodes of outsized demand.  Naturallythe gold stocks follow gold higher, amplifying its gains due to their excellentprofits leverage to the gold price. Today gold stocks are now once again early on in gold’s strongestseasonal rally of the year, driven by this annually-recurring robust winter gold demand.

Since it is gold’s own demand-drivenseasonality that fuels gold stocks’ seasonality, that’s logically the bestplace to start to understand what’s likely coming.  This old research thread focuses on modernbull-market seasonality, as bull and bear price action are quitedifferent.  Gold enjoyed an epic 638.2%bull run from April 2001 to August 2011, fueling gold stocks skyrocketing1,664.4% per their leading HUI index then!

Following that secular juggernaut, goldconsolidated high before starting correcting into 2012.  But the yellow metal didn’t enter formal bearterritory down 20%+ until April 2013. That beast mauled gold on and off over several years, so 2013 to 2015are excluded from these seasonal averages. Gold finally regained bull status powering 20%+ higher in March 2016,then its modest gains grew to 96.2% by August 2020.

Another high consolidation emerged afterthat, where gold avoided relapsing into a new bear despite a seriouscorrection.  Later the yellow metalstarted powering higher again, coming within 0.5% of a new nominal record inearly March 2022 after Russia invaded Ukraine. So 2016 to 2021 definitely proved bull years too, with 2022 reallylooking like one early on.  Then Fedofficials panicked, unleashing market chaos.

Inflation was raging out of control thanksto their extreme money printing.  In just25.5 months following March 2020’s pandemic-lockdown stock panic, the Fedballooned its balance sheet an absurd 115.6%! That effectively more than doubled the US monetary base in just acouple years, injecting $4,807b of new dollars to start chasing and biddingup the prices on goods and services. That fueled an inflationsuper-spike.

With big inflation running rampant, Fedofficials frantically executed the most-extreme tightening cycle in this central bank’s history.  Theyhiked their federal-funds rate an astounding 450 basis points in just 10.6months, while also selling monetized bonds through quantitativetightening!  That ignited a hugeparabolic US-dollar spike, unleashing massive gold-futures selling slamming gold 20.9% lower into late September 2022.

That was technically a new bear market,albeit barely and driven by an extraordinary anomaly that was unsustainable.  Indeed gold soon rebounded sharply,exiting 2022 with a trivial 0.3% full-year loss.  Gold kept on powering higher, reentering bullterritory up 20.2% in early February 2023! So I’m also classifying 2022 as a bull year for seasonalityresearch.  Gold’s modern bull yearsinclude 2001 to 2012 and 2016 to 2023.

Prevailing gold pricesvaried radically across these secular spans, running just $257 when gold’s epic2000s bull was born to October 2024’s latest record high of $2,772!  That vast range of gold levels spread overall those long years has to first be rendered in like-percentage terms in order to make them perfectly comparablewith each other.  Then they can beaveraged together to distill out gold’s bull-market seasonality.

That’s accomplished by individually indexing each calendaryear’s gold price action to its final close of the preceding year, which isrecast at 100.  Then all gold priceaction of the following year is calculated off that common indexed baseline,normalizing all years.  So gold tradingat 110 simply means it has rallied 10% off the prior year’s close.  Gold’s previous seasonality before 2023 wasadded is shown in light blue.

Gold’s performance hasbeen phenomenal in recent decades, averaging impressive calendar-year gainsof 13.7% through 20 of the last 23 years! And the great majority of this span came before the Fed more thandoubled the US money supply, fueling the raging inflation since.  The resulting really-high general pricelevels are still rising, making modest 5%-to-10% portfolio gold allocationsessential for all investors.

Seasonally gold enjoysthree distinct rallies occurring in autumn, winter, and spring.  Their average gains from 2001 to 2012 and2016 to 2023 clocked in at 4.8%, 8.4%, and 3.5%.  Thus gold’s young winter rally has proven itsstrongest seasonal one of all, achieving gains doubling the other two’s average!  This winter rally tends to start marching inlate October, and then power higher on balance until late February.

Given gold’srecord-shattering run this year, 2024’s winter-rally setup for gold is morecomplicated than usual.  Gold didexperience a 2.4% pullback into early October. That was considerably bigger than the 1.4% seasonal average between lateSeptember to late October, but really mild considering gold’s uniquesetup this year.  After soaring so far sofast in recent months, gold’s short-term outlook is quite bearish.

There are two mainreasons, which I analyzed in depth in my gold-selloff-risk-high essay four weeks ago.  First gold blastedup to rarefied extremely-overbought levels that hadn’t been seen foryears.  After similar past stretchings farabove its baseline 200-day moving average, gold usually soon sufferedbig-and-fast selloffs.  Last week andthis week, gold surged way into dangerous territory at 1.178x and 1.183x its200dma!

Second, speculators’gold-futures positioning is extremely-overextended.  These hyper-leveraged traders who oftendominate short-term gold price action bought so aggressively their longcontracts blasted up to their 5th-highest levels on record since early1999!  Previous super-high spec longswere soon followed by symmetrical mean-reversion dumping hammering gold lower.  So big gold-futures selling could eruptanytime.

But remarkably ithasn’t despite plenty of major catalysts that have sparked it in the past!  Since I wrote that essay, we’ve seen a bigupside surprise in monthly US jobs, hotter CPI and PPI inflation prints, the USDollar Index blasting higher in a strong bear rally, and futures-impliedexpected Fed rate cuts in 2024 and 2025 falling dramatically.  Yet rather shockingly none of that shookloose any meaningful long liquidations.

Gold eluding thatoverdue selloff so far doesn’t mean it isn’t still coming, it could start anyday now!  But gold’s incredibleresilience heading into its winter-rally strong season reveals big demandelsewhere.  The World Gold Councilhas confirmed major gold buying from Chinese investors and central banks in2024, and mounting Indian gold demand after big import-tax cuts and MiddleEastern demand on geopolitical fears.

After decades intenselystudying, trading, and writing about this precious-metals sector, all myexperience calls for gold still soon suffering a sizable rebalancingselloff.  It will likely prove a largerpullback nearing 10%.  But if thatcontinues to tarry and gold’s winter rally this time around achieves thoseaverage 8.4% seasonal gains, we’d be looking at $2,825 gold.  These coming months enjoy most of gold’sstrongest seasonals.

Over this samemodern-gold-bull-year span over the past quarter-century, January has beengold’s best calendar month by far averaging hefty 2.7% gains!  November comes in second at 2.1%, whileDecember narrowly misses third at 1.6%.  Thesenext few months have long been gold’s strongest seasonal cluster.  These stiff tailwinds should help boostgold’s upside, either after that probable selloff or gradually over time.

And there’s anunprecedented driver that could short-circuit any futures selling to catapultgold way higher.  Thanks to the greedy AI stock bubble, Americanstock investors have largely ignored gold’s entire upleg.  Their gold portfolio allocations areeffectively zero.  The combinedphysical-gold-bullion holdings of the world-dominating GLD and IAU gold ETFswere worth $114b at this week’s latest record high of $2,786.

Yet that remainsvanishingly-small in the context of the broader markets.  The elite S&P 500 companies alone nowcommand a staggering collective market capitalization of $52,099b.  That implies American stock investors have a trivial0.2% portfolio allocation in gold, which is nothing!  Astoundingly they have yet to really startchasing this gold upleg, which is still likely coming as record gold prices wintheir attention.

Gold’s current monsterupleg has soared an epic 53.1% higher over the past 12.9 months, the biggest inmany years!  Yet crazily GLD+IAU holdingshave slipped 0.4% or 5.1 metric tons during that span.  Gold’s last comparable monster uplegs thatachieved many record closes like today’s both crested in 2020 at great 42.7%and 40.0% gains.  Both of those giantuplegs were mostly driven by huge GLD+IAU-share buying.

American stockinvestors rushed to buy these dominant gold ETFs faster than gold was beingbought, forcing them to shunt that excess demand into adding gold bullion.  GLD+IAU holdings soared 30.4% or 314.2tduring that first upleg, then skyrocketed a stupendous 35.3% or 460.5t in thesecond!  Today’s gold upleg can stillgrow much larger as Americanstock investors inevitably return to start chasing gold’s gains.

Gold stocks areultimately leveraged plays on gold, with their leading GDX gold-stock ETF amplifyingits material moves by 2x to 3x most of the time.  So gold stocks’ winter-rally performance thisyear depends on gold’s like usual. Because GDX was only born in May 2006, it remains too young for thissecular analysis.  So the classic HUIgold-stock index is used instead, which mirrors GDX with the same majorcomponents.

The major gold stocksof the HUI and GDX averaged excellent 22.2% gains through 20 of the last 23years!  With that kind of track record,it’s surprising this contrarian sector hasn’t been more popular.  Naturally with gold blasting higher intouncharted territory, GDX is faring better than usual rallying 33.9%year-to-date.  Yet gold stocks are greatlylagging their metal at 1.0x upside leverage in 2024, they need to catch up!

Usually amplifyingtheir metal, gold stocks too have enjoyed three distinct autumn, winter, andspring seasonal rallies.  Their averagegains during those spans ran 7.4%, 12.7%, and 11.9%, leveraging gold’s seasonalrallies by 1.5x, 1.5x, and 3.4x.  Whilegold stocks’ winter rally has proven their largest, it hasn’t been thestrongest due to that lower leverage to gold. Gold stocks underperforming is largely psychological.

Traders’ apathy orbearishness on this high-potential sector is still festering from mid-2022’sextreme anomaly.  Gold was just under nominalrecord highs in early March that year. Then the Fed kicked off that most-extreme tightening cycle in itscentury-plus history.  That started withan extraordinarily-extreme 375 basis points off near-zero in just 7.6months!  That blistering hiking launchedthe US dollar stratospheric.

Resulting far-higherdollar yields catapulted the benchmark US Dollar Index an extreme 16.7% higherin just 6.0 months, to an extreme 20.4-year secular high!  That unleashed withering gold-futuresselling, crushing gold 20.9% lower narrowly into a bear in 6.6 months.  That brutal maelstrom sucked in gold stocks,with GDX plummeting 46.5% in 5.3 months! The tremendous sentiment damage that wrought has yet to recover.

Even worse, thisextreme anomaly hammering gold and its miners happened as US CPI inflation soared toits hottest levels since November 1981! If gold couldn’t rally in massive inflation, traders figured it washopelessly broken and capitulated.  Nevermind gold and GDX have soared 71.7% and 101.6% since that craziness inevitablypassed!  But the bearish psychology thatspawned lingers, retarding gold-stock upside.

Yet that pall shouldcontinue fading in coming months, as gold stocks’ winter rally is shaping up tobe an exceptionally-strong one.  Severalmajor factors argue in favor for outsized gold-stock gains.  Gold-stock prices remain far from reflectinggold’s record-breaking upleg, with GDX rallying 70.2% best over this past yearfor mere 1.3x upside leverage to gold’s 53.1%. That historical 2x to 3x yields 106% to 159% GDX gains!

Remember seasonalrallies are tailwinds but gold stocks’ primary sentimental, technical, andfundamental drivers are much more important. This sector is on the verge of a major tipping point wheregold stocks start growing popular again. The growing gold bullishness as its big gains mount will spill into itsminers’ stocks.  That will fuel apowerful virtuous circle of buying begetting buying, traders chasing gold-stockupside.

Gold stocks’ massive secular breakout will accelerate that all-important herd sentiment shift.  Just last week GDX achieved its highest closein 4.2 years, and was merely 0.9% under hitting a much-more-important 11.8-yearsecular high!  Strong gold-stocktechnicals will attract interest in this sector’s incredibly-bullish fundamentals.  The gold miners are now reporting their best quarterly earnings ever,truly epic.

The rich-and-fatprofits driven by these dazzling record gold prices will force already-lowvaluations even lower.  That’s despitethe world’s largest gold miner just disappointing big.  Super-major Newmont’s stock crashed 14.7% after reporting Q3’24 results!  But thatwas NEM-specific as I analyzed in depth in our latest weekly subscriptionnewsletter.  Newmont has longunderperformed, struggling with depletion and rising costs.

Newmont’s deadweightdrag on GDX aside, the broader gold-stock sector is still going to report epicQ3 results.  So this year’s winter-rallyseasonal tailwinds are aligning behind very-bullish sentimental, technical, andfundamental gold-stock drivers.  Thus GDXis very likely to achieve multiples of its usual winter-rally gains incoming months.  At 2.5x upside leverageto gold’s gains so far, we’d be looking at GDX over $60!

Three of gold stocks’best seasonal months of the year are clustered into this winter-rally span!  This last chart uses a similar methodology toslice gold-stock seasonals into calendar months.  There is no other time where gold stocks havesuch strong monthly seasonals.  Tradersare more likely to buy gold stocks during their winter rally, which shouldamplify those bullish sentimental, technical, and fundamental drivers.

On average in thesesame modern gold-bull years of 2001 to 2012 and 2016 to 2023, the HUI’s bestcalendar month has been November with 4.0% average gains!  Then December and January follow not farbehind at 3.3% and 3.1%, ranking as third and fourth respectively.  Gold stocks enjoy their strongest cluster ofseasonal gains of the year in coming months, which adds an additional layer ofbullishness to them.

While marketseasonality is interesting, we have to remember it’s only a secondarydriver.  But when strong seasonals alignwith bullish sentiment, technicals, and fundamentals, those tailwinds willboost sector gains.  That’s sure the caseheading into 2024’s gold-stock winter rally, tempered by one major caveat.  When gold’s overdue pullback or correctionarrives, it will suck in gold stocks to amplify its losses.

But that is more likelyto interrupt this year’s winter rally than scuttle it.  This healthy rebalancing selloff will be agood opportunity to add gold-stock positions. Our newsletter trading books are mostly full of thefundamentally-superior mid-tierand junior gold miners we’ve long specialized in, but we’ve been stoppedout of other trades at great gains.  I’mlooking forward to gold retreating so we can reload and top off our trades.

Successful trading demands always staying informed on markets, tounderstand opportunities as they arise. We can help!  For decades we’vepublished popular weekly and monthly newsletters focused on contrarian speculation andinvestment.  They draw on my vastexperience, knowledge, wisdom, and ongoing research to explain what’s going onin the markets, why, and how to trade them with specific stocks.

Our holistic integrated contrarian approach has proven verysuccessful, and you can reap the benefits for only $10 an issue.  We extensively research gold and silverminers to find cheap fundamentally-superior mid-tiers and juniors with outsizedupside potential.  Sign up for free e-mail notifications when we publish newcontent.  Even better, subscribe today to our acclaimednewsletters and start growing smarter and richer!

The bottom line is gold and its miners’ stocks are entering theirstrong winter-rally seasonals.  Thosetailwinds are driven by outsized holiday gold-jewelry buying followed bynew-year investment demand.  Whiletechnically a rebalancing selloff remains overdue, gold is still likely topower higher on balance through 2024’s winter rally.  American stock investors finally starting tochase gold should fuel big gains.

The gold stocks will mirror and amplify the metal which drivestheir profits like usual.  But theirwinter-rally upside potential in coming months is much bigger than normal.  Gold stocks have huge catch-up rallying leftto do to reflect these dazzling record gold prices, which are fueling recordearnings.  GDX is breaking out in secularterms, which will attract increasing interest and capital inflows as gold stocksregain popularity.

Adam Hamilton, CPA

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