The first
conclusion your eyes reap from this chart is probably gold’s tendency
to rise on balance. Throughout
the calendar year, it is generally climbing. This is logical since these seasonal
tendencies only apply to the years since 2000 where gold has been in a strong
secular bull. While bulls do flow
and ebb, advancing then correcting, over time they inevitably lead to higher
price levels.
Seasonally
gold has carved a definite uptrend channel for the first 2/3rds of the
calendar year. It is really
well-defined too, with four solid intercepts at support and three at resistance. Like any conventional technical
uptrend, traders can game this tendency.
The seasonal tailwinds are more likely to blow gold higher when it is
near support and lower when it is near resistance.
Regardless
of what primary trading indicators you use, it is still wise to consider
prevailing seasonals before you launch new trades. Ideally your primary and secondary
indicators all line up, which gives you better odds for success in your
trades. And if your primaries
don’t agree with seasonals, the primaries will probably still prove
right yet the resulting move isn’t likely to be as intense since it has
to buck seasonal headwinds.
Within this seasonal uptrend, the
biggest rally to exploit runs from mid-March to late May. Averaged across all the years since
2000, gold tends to run higher over this short span. Unfortunately this seasonal tendency
failed in 2008, as you certainly remember if you were long gold then. Between mid-March and late May gold
fell about 12% this year. Yet
even with this bad 2008 averaged in above, gold’s seasonal tendency is
still to run higher over this particular span.
The events
of spring 2008 are a great cautionary tale on reading too much into
seasonality. Excessive greed or
fear, regardless of their cause, can overwhelm seasonal tendencies. So once again make sure you use
seasonals only as a secondary trading indicator. While they do help define the
probabilities of a price moving in a certain direction, the probability scale
still leaves plenty of room for variation.
After the
usual spring gold rally, summer is this metal’s weakest time of the
year by far. Note above how gold
merely tends to grind sideways on balance in June, July, and August. I just wrote an essay on this
tendency alone if you want to dig deeper. The best way to weather gold’s
summer doldrums is to not expect too much from the metal and realize it is
likely to simply trade sideways in a range-bound fashion.
But boy, if
you can weather the summer doldrums without psychological damage, your prize
is autumn. Autumn is the
strongest time of the year for gold seasonally by far. From early August (like right now!) to
early February, on average gold has rallied 14.0% in its bull to date. This is a big move, the part of the year in which most of gold’s
bull-market gains have been achieved.
Be long gold between August and February!
This massive
autumn rally starts accelerating in late August and gold blows above its
seasonal resistance by mid-September or so on average. While going long in August is optimal,
there is a brief pullback in early October that offers procrastinators one
last chance to get long. And
after that gold just powers higher without material respite into early
February. Gold’s seasonal
strength over this period is awesome.
But
why? What makes August to
February so special? Since new
gold brought to market is relatively constant throughout the year, it has to
be a demand phenomenon that drives this big autumn rally. Investment demand for gold has to be
much more intense between August and February than it is for the rest of the
year. And this is indeed the case
as a variety of cultural factors drive a surge in gold buying.
Starting in
late August or early September, Asian crops are harvested. The vast majority of Asia (all of
continental Asia) sits in the northern
hemisphere, so it enjoys the same sidereal seasons as we do in the
States. Thus Asian farmers
harvest their crops at the same time of the year we do. But unlike American farmers, Asians
tend to plow some of the surplus fruits of their labors into physical gold
bullion.
Gold is the
ultimate form of saving. It has
outlived every failed government and fiat currency regime in history and
still retains its intrinsic value to this day. It will outlive every government and
currency on the planet today too.
So if you want to protect your surplus labor, save it to build wealth,
gold is the best option. And this
is especially true in countries with lower political stability than we enjoy,
which is virtually all of Asia.
The demand
spike in gold in late August and September that drives sharply higher prices
most years is a result of this harvest buying. Crops are sold for cash, and some
portion of this cash not directly needed for ongoing expenses is converted
into physical-gold savings. It is
too bad Americans are not smart enough to do this, both to save (consume less
than we earn) and to store wealth outside
of the ailing US dollar in gold.
The wise and
prudent Asians, having lived through countless failed governments and
currencies over millennia, have a deep cultural affinity for gold. This continues after harvest into the
famous Indian wedding season.
This fascinating cultural phenomenon tends to peak between early
October and late November, and is directly responsible for those
months’ strong gold rallies.
In India,
weddings are a huge deal. Most marriages are arranged, and
couples are typically married off during autumn festivals like Diwali. It is believed that being married in
festival season provides good luck, longevity, happiness, and success for a
marriage. The families of Indian
brides give them wedding gold in the form of intricate 22-karat jewelry. Not only is it beautiful adornment for
the bride, but gold’s intrinsic value helps secure her financial future
and her financial independence within her husband’s family.
India is the
world’s largest consumer of gold.
Most of it is in the form of jewelry, but Indians don’t separate
gold jewelry and gold investment like we do in the West. They are one and the same. Brides’ dowries may not sound
like much, but collectively they are the biggest seasonal driver of gold
investment demand on the planet.
Something like 40% of India’s entire annual gold demand occurs
during the short autumn wedding season!
Sometimes
Westerners marvel at this, yet we aren’t all that different. As the tail end of Indian wedding
season arrives, gold demand surges in the West for Christmas buying. A big portion, if not the majority, of
discretionary spending in the West occurs between Thanksgiving and
Christmas. Some of these holiday dollars
flow into gold jewelry as gifts for wives, girlfriends, daughters, and
mothers. So Western gold jewelry
demand is also concentrated seasonally into a narrow period of time,
essentially December.
After Asian
harvest, Indian wedding season, and Western holiday buying run their courses,
you’d think that gold investment demand would wane dramatically. But this isn’t the case. One more event spikes global
investment demand, Chinese New Year.
The Chinese calendar is heavily influenced by lunar cycles, so its new
year tends to occur between late January and mid-February on our Western calendar.
Gold is
woven throughout the Chinese New Year mythos. For example, one of the popular icons
for the celebrations is yuanbao. This symbolizes money and wealth and
is shaped in the form of ingots that were the standard medium of exchange in
ancient China. Gold trinkets are
used to decorate homes for festivities and are also given as gifts. This drives strong Chinese gold demand.
I also
suspect the Chinese, late in their year (January for us), tend to invest some
of their surplus capital in gold.
In the West we make many investment decisions late in our own year
too, as that is when we finally know how much we made, how much we owe in
taxes, and how much surplus capital we can save and invest. Chinese New Year celebrations and
Chinese year-end gold buying keep gold buoyant into early February.
So as you
can see, gold’s strong seasonal rally between August and February is
quite logical. Over this span
various cultural practices combine to create one long
investment-demand-driven surge for the yellow metal. Within these months at various times,
all of gold’s major consumers have a big cultural reason to buy. And much of this demand isn’t
economically sensitive. If you
are an Indian father marrying off a beloved daughter, I bet you really don’t
care whether business was good that year or not. You will buy her gold.
Traders
would do well to be long gold, and anything PM-related, for this
August-to-February period. Almost
all of gold’s bull-market gains have been made within this investment-demand-intensive
window. The optimal timing to get
long is psychologically challenging though. Investors and speculators need to be
aggressively adding gold positions in August at the dismal demoralizing lows
of the summer doldrums. They have
to force themselves to buy when they least want to, to be true contrarians.
This next
chart looks at gold bull seasonals in a different way, indexed monthly. While slicing the gold price up in
calendar months is somewhat arbitrary (trends seldom begin or end on the 1st
or 31st), it is still interesting.
This approach shows which calendar months tend to be the strongest for
gold. Not surprisingly, all of
the best occur within the big-autumn-rally span of time.
In order to
be strong, gold has to approach a 2% gain in a given calendar month on
average over the years since 2000.
And I define weak months as a 1% loss on average. This asymmetry exists because we are
in a secular bull where prices are generally rising. The same five optimal seasonal times
to go long gold rendered in the first chart are replicated here for
comparability. Early August is
the best of them all.
This is
because gold’s biggest calendar month of the year on average in this
bull has been September. Gold
tends to rise by 3.5% that month.
This might not seem impressive, but it really is for gold. If 150,000 tonnes of gold have been
mined in world history, then the global above-ground gold is worth something
like $4.3 trillion at $900 per
ounce. So even a 1% move in gold represents
several tens of billions in wealth creation or destruction. And of course these seasonal numbers
are averages, which moderate the underlying results.
After
gold’s best month in September, it tends to consolidate into early
October in the couple-week lull between the Asian harvest and the Indian
wedding season. But then in late
October it starts surging and this continues into November. At a 2.5% monthly gain on average, it
is gold’s second-best month of the year seasonally. Number three follows right after that,
with December’s 2.2% average gain.
And then January comes in fourth at 1.9%.
So of the
six months between early August and early February, gold’s massive
seasonal autumn rally, fully four are gold’s biggest months of the
calendar year. You absolutely
want to be long gold, and indeed the entire PM-complex since everything
PM-related ultimately follows gold’s lead, in September, November,
December, and January.
Seasonal-demand-driven price increases are very compelling then.
Obviously
this is really exciting today since we are now on the verge of gold’s
biggest seasonal rally of the year.
But remember that seasonals are a tailwind, a secondary indicator. So if gold was overbought today and
greed abounded, the bullish seasonals could easily be overridden. But thankfully it is not, indeed just
the opposite has occurred. Gold
is deeply oversold today and sentiment is horrendous. Excessive levels of both fear and
frustration have conspired to create an explosively-bullish sentiment mixture.
I’ve
been discussing these bullish gold, silver, and PM-stock technicals lately in
our acclaimed monthly and weekly
subscription newsletters. With
primary and secondary indicators all lining up and calling for a major gold
upleg in the coming months, we’ve also started adding new PM trading
positions. This week’s
excessive selling has created a very-high-potential buying opportunity that we are exploiting. If you want to see exactly how we ride
this thing, and have the chance to mirror our trades, please subscribe today!
The bottom
line is gold does have strong
seasonal tendencies. Even though
gold isn’t grown like wheat, the passage of the calendar influences
gold investment demand across the globe which directly impacts the gold
price. Gold is deeply woven into
cultures around the world and their various customs create lumpy gold
investment demand. It is
clustered at specific times instead of spread out evenly across the year.
Naturally
investors and speculators should exploit these seasonal tendencies. The best time seasonally to go long
gold and other PM-related trades is
right now. From August to
February gold’s biggest seasonal rally of the year erupts. During this timespan, which includes
gold’s four best calendar months, the lion’s share of its entire
bull-market gains have been made.
I fully expect the rest of 2008 to unfold according to this precedent.
Adam Hamilton, CPA
Zealllc.com
August 8, 2008
So how can
you profit from this information?
We publish an acclaimed monthly newsletter, Zeal Intelligence,
that details exactly what we are doing in terms of actual stock and options
trading based on all the lessons we have learned in our market research. Please consider joining us each month
for tactical trading details and more in our premium Zeal Intelligence
service at … www.zealllc.com/subscribe.htm
Questions
for Adam? I would be more
than happy to address them through my private consulting business. Please visit www.zealllc.com/adam.htm for more
information.
Thoughts,
comments, or flames? Fire away at
zelotes@zealllc.com. Due to my staggering and perpetually
increasing e-mail load, I regret that I am not able to respond to comments
personally. I will read all
messages though and really appreciate your feedback!
Copyright
2000 - 2006 Zeal Research (www.ZealLLC.com)