The
gold miners’ stocks are enjoying a strong summer, recently surging
to new bull highs. These upleg gains should continue mounting with
gold’s autumn rally providing stiff tailwinds. Outsized Asian
demand usually fuels seasonal gold gains into late September.
Already large thanks to gold’s unique bullish backdrop, this year’s
autumn rally has excellent potential to keep growing. Gold stocks
will leverage its upside.
Seasonality is the
tendency for prices to exhibit recurring 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, which naturally colors our trading decisions. The
calendar year’s passage affects the timing and intensity of buying
and selling.
Gold stocks
display strong seasonality because their price action amplifies that
of their dominant primary driver, gold. Gold’s seasonality
generally isn’t driven by supply fluctuations like grown commodities
see, as its mined supply remains
relatively steady year-round. Instead gold’s major seasonality
is demand-driven, with global investment demand varying
considerably depending on the time in the calendar year.
This gold
seasonality is fueled by well-known income-cycle and cultural
drivers of outsized gold demand from around the world. Starting
in late summers, Asian farmers begin to reap their harvests. As
they figure out how much surplus income was generated from all their
hard work during the growing season, they wisely plow some of their
savings into gold. Asian harvest is followed by India’s famous
wedding season.
Indians believe
getting married during their autumn festivals is auspicious,
increasing the likelihood of long, successful, happy, and even lucky
marriages. And Indian parents outfit their brides with beautiful
and intricate 22-karat gold jewelry, which they buy in vast
quantities. That’s not only for adornment on their wedding days,
but these dowries secure brides’ financial independence within their
husbands’ families.
So during its
bull-market years, gold has tended to enjoy sizable-to-strong autumn
rallies driven by these sequential episodes of outsized demand.
Naturally the gold stocks follow gold higher, amplifying its gains
due to their profits leverage to the gold price. Today gold stocks
are once again back at their most-bullish seasonal juncture,
the transition between the typically-drifting summer doldrums and
big autumn rallies.
Since it is gold’s
own demand-driven seasonality that fuels gold stocks’ seasonality,
that’s logically the best place to start to understand what’s likely
coming. This old research thread focuses on modern bull-market
seasonality, as bull and bear price action are quite different.
Gold enjoyed an epic 638.2% bull run from April 2001 to August 2011,
fueling gold stocks skyrocketing 1,664.4% per their leading
HUI index then!
Following that
secular juggernaut, gold consolidated high before starting
correcting into 2012. But the yellow metal didn’t enter formal bear
territory down 20%+ until April 2013. That beast mauled gold on and
off over several years, so 2013 to 2015 are 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 after that, where gold avoided relapsing into
a new bear despite a serious correction. Later the yellow metal
started powering higher again, coming within 0.5% of a new nominal
record in early March 2022 after Russia invaded Ukraine. So 2016 to
2021 definitely proved bull years too, with 2022 really looking like
one early on. Then Fed officials panicked, unleashing market
chaos.
Inflation was
raging out of control thanks to their extreme money printing. In
just 25.5 months following March 2020’s pandemic-lockdown stock
panic, the Fed ballooned its balance sheet an absurd 115.6%! That
effectively more than doubled the US monetary base in just a
couple years, injecting $4,807b of new dollars to start chasing
and bidding up the prices on goods and services. That fueled an
inflation
super-spike.
With big inflation
running rampant, Fed officials frantically executed the
most-extreme
tightening cycle in this central bank’s history. They hiked
their federal-funds rate an astounding 450 basis points in just
10.6 months, while also selling monetized bonds through
quantitative tightening! That ignited a huge parabolic 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 bull territory up
20.2% in early February 2023! So I’m also classifying 2022 as a
bull year for seasonality research. Gold’s modern bull years
include 2001 to 2012 and 2016 to 2023.
Prevailing gold prices varied radically across these secular spans,
running just $257 when gold’s epic 2000s bull was born to July
2024’s latest record high of $2,465. That vast range of gold levels
spread over all those long years has to first be rendered in
like-percentage terms in order to make them perfectly comparable
with each other. Then they can be averaged together to distill out
gold’s bull-market seasonality.
That’s accomplished by individually indexing each calendar
year’s gold price action to its final close of the preceding year,
which is recast at 100. Then all gold price action of the following
year is calculated off that common indexed baseline, normalizing all
years. So gold trading at 110 simply means it has rallied 10% off
the prior year’s close. Gold’s previous seasonality before 2023 was
added is shown in light blue.
If
investors understood gold’s phenomenal performance in recent
decades, it would be far more popular with allocations included in
every portfolio. Through 20 of these last 23 years, gold has
enjoyed fantastic average calendar-year gains of 13.7%! And
the great majority of that came before the Fed recklessly more than
doubled the US money supply. With inflation raging since, everyone
should have 5% to 10% in gold.
Seasonally gold enjoys three distinct rallies occurring in autumn,
winter, and spring. Their average gains from 2001 to 2012 and 2016
to 2023 clocked in at 4.8%, 8.4%, and 3.5%. These autumn rallies
tended to start marching higher in mid-June, after
gold’s
summer-doldrums bottoming. Then they typically powered higher
on balance until hitting the upper resistance of gold’s seasonal
uptrend around late September.
2024’s autumn rally was born about a week ahead of schedule. On
June 7th gold suffered a brutal 3.6% plunge to $2,286, its worst
daily loss in fully 3.6 years! That was driven by China’s
central bank breaking an 18-month streak of reporting monthly gold
buying, and monthly US jobs printing at a four-standard-deviation
upside surprise which was Fed-hawkish. Summer-doldrums selling was
pulled forward and condensed.
Gold
was down 1.8% month-to-date at that nadir, more than double its
usual 0.7% mid-June loss. But as I explained in my first essay
after that Jobs-Friday plunge, gold was
still
consolidating high. Since blasting to extremely-overbought
levels in mid-April, gold had largely drifted between $2,300 to
$2,400. Instead of correcting, gold merely pulled back on
continuing buying from Chinese investors and central banks.
Despite that serious down day, gold had only fallen 5.7% from
mid-May’s latest nominal record high. That was well shy of the 10%+
correction threshold. And gold would soon recover strongly from
that forced summer-doldrums low. It bounced 1.6% into the end of
June, exiting that month with a little 0.2% loss. That was right in
line with June’s -0.1% seasonal average, despite gold’s considerable
intra-month volatility.
While gold’s autumn rallies are usually birthed in mid-June, they
really accelerate in July with nice 1.0% average gains. But this
year’s performance is trouncing that, with gold rallying 3.2%
month-to-date as of midweek! That exceptionally-strong
mid-summer run included surging to $2,465, gold’s first new record
since mid-May. The main driver was gold-futures speculators
awakening from a summer-doldrums slumber.
Their overall positioning on both the long and short sides is
published weekly in Commitments of Traders reports. For six CoT
weeks from late May to early July, they sat on their hands. Their
average CoT-week buying in gold-equivalent terms was just 3.2 metric
tons, virtually nothing. But during the next two CoT weeks into
mid-July, they rushed back in with a vengeance unleashing major
buying of 49.2t and 89.2t!
Like
usual I’ve been analyzing all that weekly gold-futures action and
its implications for gold in depth in our popular subscription
newsletters. There’s certainly a chance that frenzied buying pulled
forward a big chunk of 2024’s autumn rally. If that’s the case,
gold could continue consolidating high on balance mostly within
recent months’ $2,300-to-$2,400 range. But this is also a great
setup for these big seasonal gains to grow.
In
seasonal-average terms, gold’s autumn rally tends to accelerate
as it matures! Gold’s average returns in June, July, August, and
September until cresting have run -0.1%, +1.0%, +1.6%, and +1.6%.
Seasonal buying from Asian harvests and Indian wedding season really
picks up in August and most of September. So despite its big
summer-2024 gains so far, gold is heading into some of its stronger
months of the year.
Where gold goes from here depends on who is buying and how
aggressively. Normally speculators’ gold-futures trading and
American stock investors’ gold-ETF-share buying dominate gold price
trends. But the former have largely exhausted their likely
capital firepower for buying after early July’s frenzy. And
being heavily entranced by that long-in-the-tooth
AI stock bubble,
American stock investors have totally ignored gold.
But
that could change fast, with either this bubble decisively bursting
or gold rallying high enough for long enough to command investors’
attention. Interestingly both are underway. The flagship S&P 500
stock has fallen 4.2% over the past week or so, and the dominant
gold ETFs are starting to see holdings builds revealing capital
inflows. If American stock investors finally start returning,
gold’s autumn rally will grow huge.
But
even if they tarry, much of
gold’s remarkable
breakout to new nominal records since early March was fueled by
atypical buyers. Chinese investors and central banks have
taken control, doing big consistent buying that has driven gold much
higher! While comprehensive gold fundamental data detailing that is
only reported quarterly by the World Gold Council, there haven’t
been any indications that buying has ceased.
So
gold’s 2024 autumn rally has excellent potential to continue growing
even after such hefty early gains. Some combination of gold-futures
speculators, American stock investors, Chinese investors, and
central banks buying could easily drive gold much higher. Buying
tends to beget buying in markets, as traders love chasing winners.
Gold’s 3.0% summer-to-date gains now rank as its sixth-best between
2001 to 2024!
That’s very bullish for gold stocks, as their leading GDX ETF tends
to amplify material gold moves by 2x to 3x. But only birthed
in May 2006, GDX is too young for this long-term seasonal analysis.
So instead the classic HUI gold-stock index is used, which is
functionally interchangeable with GDX containing the same major gold
miners. Gold stocks’ already-outsized autumn-rally gains are set to
grow larger as gold runs.
Major gold stocks have averaged outstanding 22.2% gains
during 20 of these last 23 years! With a great track record like
that, it blows my mind that this high-potential contrarian sector
isn’t more widely followed by traders. Everyone who likes
multiplying their wealth should keep an eye on gold stocks and
maintain some reasonable portfolio allocation like 15% to 20%. Gold
stocks are ultimately leveraged plays on gold.
So
following and amplifying their metal, they too have enjoyed three
distinct autumn, winter, and spring seasonal rallies. Their average
gains during those spans ran 7.4%, 12.7%, and 11.9%, leveraging
gold’s seasonal rallies by 1.5x, 1.5x, and 3.4x. Traditionally gold
stocks’ autumn rally has proven their weakest, but this year
is shaping up much differently. This sector’s summer-doldrums low
is also carved in mid-June.
That
came right on schedule in 2024, but four trading days after gold’s
Jobs-Friday plunge. GDX fell to $33.15 on close, down 6.1%
summer-to-date. That was much worse than their 1.2% MTD average
loss in early June, really hammering sentiment! But as I analyzed
in an essay then,
gold stocks were reloading. I warned “this may prove the last
chance to buy relatively low for awhile” with gold’s autumn rally
nearing.
While this sector ground sideways into early July, gold stocks
resumed surging with their metal on that big gold-futures buying.
By mid-July GDX had soared 15.8% MTD, amplifying gold’s parallel
rally by 2.6x! This leading gold-miner ETF decisively broke out to
a major new bull-market high of $39.28, GDX’s best level in 2.2
years. Gold stocks were enjoying their fourth-best summer
performance from 2001 to 2024!
And
as long as gold’s autumn rally continues powering higher on balance,
gold stocks’ outsized gains ought to keep mounting. Like their
metal, gold stocks’ autumn rally accelerates as it matures.
The longer and higher GDX surges, the more traders rush to chase its
gains. In June, July, August, and September MTD into the
autumn-rally topping, the HUI averaged increasing 0.4%, 0.6%, 2.3%,
and 3.0% gains!
Summer 2024 so far has proven volatile, with GDX falling 3.9% in
June before soaring 9.7% MTD in July! The major gold stocks are
already up 5.4% this summer with its best couple months still
coming. This last chart uses a similar methodology to slice
gold-stock seasonals into calendar months. This reveals how strong
August and September are compared to June and July, which is a
bullish omen for this sector.
Gold
stocks’ autumn-rally upside potential depends on how the metal that
drives their profits fares. And gold’s near-term outlook remains
quite bullish, mainly since American stock investors still
haven’t started chasing this upleg yet. From early October to
mid-July, gold soared a mighty 35.5% higher! This is its first
upleg achieving new record-high streaks since a pair both peaking in
2020, which are really important.
They
fuel a powerful self-feeding
record-momentum
dynamic. The higher gold rallies, the more traders want to buy
in. The more they buy, the higher gold rallies. When that forges
into nominal-record territory like in this current upleg,
financial-media coverage increases. New records drive
more-frequent and more-bullish reporting on gold, which builds
awareness attracting in more speculators and investors to chase it.
Astoundingly during today’s gold upleg, American stock investors
have been net sellers. During its exact span, the combined holdings
of the world-dominant GLD and IAU gold ETFs actually fell 4.5% or
57.2t! It is wildly unprecedented in this modern gold-ETF era
for any gold upleg to grow massive without American stock investors
driving it. This time around Chinese investors and central banks
usurped that primary role.
But
American stock investors are still likely to return, especially as
that distracting AI stock bubble bursts. Gold’s last two monster
uplegs achieving new-record streaks peaked at 42.7% and 40.0%
gains in 2020. Huge American-stock-investor demand fueled them,
with GLD+IAU holdings soaring 30.4% or 314.2t in the first and
skyrocketing 35.3% or 460.5t in the second! Today’s upleg could go
from -50t to +400t or more.
While still anomalously low, differential GLD+IAU-share buying is
picking up. Their combined holdings have climbed 1.3% or 15.6t MTD
in July, their strongest build in this upleg. So American
stock investors are nibbling, and could easily start migrating back
in a bigger way in August and September. In addition to further
gold rallying likely, gold stocks have their own bullish factors
supporting a bigger autumn rally.
First the gold miners are likely to soon report their
fattest quarterly
profits on record in the next several weeks! I wrote a whole
essay in late June with the underlying analysis, which was published
when GDX was still under $34. Mainly thanks to record-shattering
gold prices, gold miners’ huge earnings growth will surprise most
fund investors. That should motivate plenty to start allocating
more capital to gold stocks.
Second gold stocks remain undervalued relative to gold, and likely
to not only keep
mean reverting but overshoot. My essay last week explored
this. Gold stocks suffered an extreme valuation anomaly back in
late February, hitting stock-panic lows. After such extremes,
prices tend to not only return to averages but overshoot
proportionally in the opposite direction! This dynamic portends
much-higher gold-stock prices.
While seasonals are interesting, they are peripheral drivers acting
like tailwinds or headwinds for gold and its miners’ stocks. Their
trends are mostly driven by sentiment, technicals, and
fundamentals. But when seasonals align with these primary
drivers, trends are strengthened. While seasonals alone can’t be
relied upon, they can definitely bolster existing bullish
conditions. That’s the case in 2024’s autumn rally.
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The
bottom line is gold and its miners’ stocks are enjoying
much-stronger autumn rallies than normal this year. Big
gold-futures buying already propelled gold to a new record high in
July, and seasonal strength tends to accelerate in August and
September. With American stock investors still ignoring gold’s
mighty upleg, it has excellent potential to continue growing in
coming months as they inevitably start chasing gold.
Meanwhile the Chinese investors and central banks who fueled gold’s
big upleg gains are likely to keep buying. And with the gold miners
about to report amazing record quarterly results, their stocks
remain undervalued relative to gold. They are mean reverting and
will likely proportionally overshoot to the high side. Add
seasonal-autumn-rally tailwinds into this mix, and gold and gold
stocks ought to keep powering higher. |