September is the best month--June is the worst

RedTiger

Frank Holmes wrote this article with this chart.





CaseyResearch has a similar chart for the past eight years only at link2


CaseyResearch also has this for HUI (gold mining stocks)


As always, seasonality is one of the weaker trading indicators and once published, seasonal trends often start to blur as traders jump the trade. However, for gold there is a simple and clear explanation for the strength in September, jewelry makers often buy in September to make items for various holidays around the world (Christmas in the U. S., wedding season in India, Ramadan for those that celebrate that holiday, Chinese New Year).

RedTiger

Here is another chart with 35 years of data:


* The "now here" comment is from a couple of weeks ago

Website link

Now keep in mind that if every trader has this same information, calendar tendencies become skewed as traders jump the trade. Because of this behavior, calendar tendencies are one of the weaker indicators. I still find it worth a look though.

/Edit to add: one year Kitco chart for gold

meluaufeet

Also I believe that pm's have less of a summer (down) effect during odd (non-election) years...

cohodk

Could also be due to the fact September is usually the weakest month for equities. Perhaps this is just an asset reallocation trade.

Now that Sept is almost over, should we sell gold as it appears to be weak in Oct?

RedTiger

<< <i>Could also be due to the fact September is usually the weakest month for equities. Perhaps this is just an asset reallocation trade.

Now that Sept is almost over, should we sell gold as it appears to be weak in Oct? >>



Remember folks are jumping the trade, with the assumption that most pros know the calendar tendencies. So when time is in doubt look at price--a 60% retracement of the up move is what the price estimate would be for a short term bottom. That would be maybe $15 to $25 lower on spot gold from current levels.

Cladiator

Looks like next month will be time to buy.

roadrunner

But there's no doubt this was a good September for gold, even if it may only have lasted for 3 weeks. The percentage gain might not be as impressive considering how high gold started from. Ira Epstein's chart may now have gold at the double peak towards the end of the month. One more shot up could still be in the cards but I doubt it, maybe just a lower high. Safer play here is to wait for the bargains by the 2nd week in October. I don't think gold is going to cave in over the next 2 months. For those already holding physical I can't see bailing on a position only to try and re-establish it again in 2 weeks at maybe 3% lower. But the gold stocks will likely take some additional hits before mid to late October or early November.

roadrunner

PerryHall

Based on these charts, there may be buying opportunities for PM's next month.

RedTiger

Time for an October month in review.

GLD closed September at 98.85, now 102.53 up about 4%
GDX closed September at 45.29, now 42.37 down about 6%

A lot more gold timers with published newsletters jumped on the rally during October. So what was once a support for bulls has turned into a drag (at least at the middle of October, I don't have the latest subscription only numbers from Hulbert Digest).

Looking back at some of the charts up the thread, the seasonal winds for gold look better for November. As always, seasonality is but one indicator, and fails at times.

jmski52

GLD closed September at 98.85, now 102.53 up about 4%
GDX closed September at 45.29, now 42.37 down about 6%

You lost me here.

RedTiger

<< <i>GLD closed September at 98.85, now 102.53 up about 4%
GDX closed September at 45.29, now 42.37 down about 6%

You lost me here. >>



It's not complicated. I'll start at the beginning. GLD is a gold ETF, GDX is an ETF for gold mining stocks. The quotes are for end of September and October, and the approximate percentage change. I didn't add any commentary as to why gold mining stocks went down while paper gold moved higher. A standard reason would be that mining stocks, like virtually all stocks, trade on expectations. So it may be that the built-in expectation in the price of GDX was for an even greater increase in the price of paper gold. When that didn't expectation didn't get met, the price of the mining stocks fell.

This reminds me of a story from many moons ago. It might have been the first Gulf War in 1991, when I bought some oil stock because I was convinced that the price of oil was going much higher. I was right about the price of crude oil as it shot higher. The stock I bought didn't move up, it actually went down, and I sold it for a loss. Lesson learned.

/edited for typos

roadrunner

For the month of October gold is down 2.5%, yet the mining stocks took it on the chin with leverage and fell about 15% per the GDX basket of 40 something mining stocks. If you count the very bottom this week gold fell about 4% from the peak while the gold stocks did about -20%. Typically their average ratio is 2 to 3:1. Several of them pulled back to levels last seen in June-August.

roadrunner

RedTiger

<< <i>For the month of October gold is down 2.5%, yet the mining stocks took it on the chin with leverage and fell about 15% per the GDX basket of 40 something mining stocks. If you count the very bottom this week gold fell about 4% from the peak while the gold stocks did about -20%. Typically their average ratio is 2 to 3:1. Several of them pulled back to levels last seen in June-August.

roadrunner >>



Gold is up for October, both paper gold and spot gold are up on the month. Are you talking about the decline from the high?

jmski52

Ah, my mistake. I didn't look closely. I thought that both symbols were GLD.

From what I read about gold mining, there are some significant differences in how the companies are financed, i.e., how much gold they have sold forward, estimated reserves, production costs, and how far along they are in bringing production into play.

Historically, gold shares represent leveraged positions, but that can mean different things, depending upon those factors.

Question for anyone - in the COT Reporting, are the 8 or so "commercials" the major gold mining companies such as Newmont?

RedTiger

<< <i>...

Question for anyone - in the COT Reporting, are the 8 or so "commercials" the major gold mining companies such as Newmont? >>




from
http://www.cftc.gov/marketreports/commitmentsoftraders/cot_about.html
link
>>
A trading entity generally gets classified as a "commercial" trader by filing a statement with the Commission, on CFTC Form 40: Statement of Reporting Trader, that it is commercially "...engaged in business activities hedged by the use of the futures or option markets." To ensure that traders are classified with accuracy and consistency, Commission staff may exercise judgment in re-classifying a trader if it has additional information about the trader’s use of the markets.
>>

That probably doesn't answer the question. Commercials certainly would include mining companies, but also includes many other companies that use gold in some form such as jewelry makers.

From what I understand the long form of the COT is hundreds of pages long in Excel format, the short form that gets widely quoted is honed down with a "machete" not a scalpel.

RedTiger

Let me add a point of clarification for the readers, gold mining stocks are not a direct play on the price of gold. While there are long periods of strong correlation, there are also times like this October with divergence. Oil stocks do not always move with the price of crude oil. Gold mining stocks do not always move with the price of gold.

Traders seeking straight leverage on gold can trade options, futures, or the leveraged ETF funds. Those would all be a more direct leverage play on the movement in the price of gold than mining shares. Like I said in my other post, virtually all stocks trade on expectations, not the current price, not the current business environment. Like I wrote in my example on oil and oil stocks, divergence can and will happen, often times when the market is the most volatile.

Norseman88

<< <i>For the month of October gold is down 2.5%, yet the mining stocks took it on the chin with leverage and fell about 15% per the GDX basket of 40 something mining stocks. If you count the very bottom this week gold fell about 4% from the peak while the gold stocks did about -20%. Typically their average ratio is 2 to 3:1. Several of them pulled back to levels last seen in June-August.

roadrunner >>



Funny you should mention how the GDX has fallen 15% in October as it is hitting major support on the charts and do for a bounce up in price probably the first half of November.

roadrunner

Funny you should mention how the GDX has fallen 15% in October as it is hitting major support on the charts and do for a bounce up in price probably the first half of November.

Taken on its chart alone that would seem likely. But one must factor in what gold, the dollar, and the SM are doing. If stocks are moving down, it's very possible GDX will continue with it, regardless of what gold is doing. If gold is moving down, the SM may not be able to drag GDX along with it. At the current time, both gold and the SM are moving down which accounts for massive leveraged losses in GDX. Gold probably still has a 5th wave down in this sequence that began a week ago. Maybe at that point it gets more than a 1 day bounce.

roadrunner

RedTiger

Worth a bump as December nears just to see the charts again. December is just as bullish for gold as November. January even more bullish.

Again, seasonality is only one indicator, and one that is easily co-opted by traders jumping the seasonal pattern that is seen in the data. (eg: traders buy extra in November because they see December is also a bullish month.)

RedTiger

As gold reaches an all time high, the chart shows some seasonal patterns, so I dug up this old thread instead of replicating work already done. The chart in the first post from Casey Research says June is the worst month for gold since 2001. During the bull run the average decline is modest, -10% on the bar graph, but that is an annualized number, meaning an average decline of -1% or so.

gsa1fan

Looks like May is a good month from your charts.

KUCH

So if June 2010 brings higher POG/ then we know parabolic move has begun

botanist

I wonder if those monthly fluctuations based on a few decades or even only less than ten years may not really be significant as investment information? Might not the opposite position be equally valid, that past behaviour during particular individual months in previous years will in the future tend to average out, and those previously down will go up, and those that previously rose will now decline? Except of course for when there is a definite calendar bias such as preparation for Christmas or other major holidays?

Isn't another problem with a monthly analysis the fact that a substantial amount of mining for precious metals is in the southern Hemisphere, especially southern Africa, Australia and Chile, where calendar factors based on the northern hemisphere are in reverse?

Ebay listings and realizations are certainly always down during the summer in the northern hemisphere where it is based, and where most of the activity is taking place, while many people are traveling, on vacation, or spending more time outdoors, and when many academic institutions are closed. That may have a small effect on the overall coin market. And in some European countries, Spain that I know about for sure, just about everything is closed during August.

Anyway, aren't those monthly statistics mostly just entertaining facts, and the notions whimsical, rather than input for serious investment strategies?

Tomohawk

Hehe...I would agree, Botanist. I'm finding chart/trend analysis to be difficult at best to read...hence my visiting this website and enjoying Cohodk, RoadRunner, ProofCollection and MJ's (and others!) posts so much. Much of what they write goes right over my non-trader's head, but occasionally (with my other readings/research) I find enough nuggets to justify a particular move.

I must say, though, the huge decline in 08 was a pretty easy money-making opp...I predicted Ford would take off and was laughed off a stock-trading forum board. I was in at around $3 and out at $10. Shoulda held that one, though...had some AMEX too for less than $13, darn it (sold at $18)...and airlines were easy too (CAL and UAUA both have at least doubled!).

I guess I'm trying to say that while those monthly figures might be the stuff of whim to some...there are definitely those who can read 'em and profit big time.

roadrunner

This data comes down to Holmes' 40 year chart vs. Casey's 7 yr chart. I think I'd tend to go with the chart that has mapped this last bull market (2001-2010). I'd rather see charts showing what gold has done during bullish periods. So a compilation chart of the 1969-1980 period + 2001-2010 period would make the best sense to me. And of course one has to consider that data 30-40 yrs old just may not have the same applicability as it once did. Let's face it, the PTB/PPT/big banks are far more active in the markets today than they were in the 70's. But, can we honestly apply seasonality to bankrupt banks, insolvent nations, and near worthless fiat currencies?

roadrunner

RedTiger

<< <i>I wonder if those monthly fluctuations based on a few decades or even only less than ten years may not really be significant as investment information? ...

Anyway, aren't those monthly statistics mostly just entertaining facts, and the notions whimsical, rather than input for serious investment strategies? >>



I use it, and I find it helpful. I'm sure many readers have already found it useful.

Traders and investors are free to use what ever information they find useful and ignore anything they think is not. Personally, I find seasonality to be useful data. Some of the caveats are already outlined in the first post with the data: seasonality isn't all that reliable, and once actual data gets published traders tend to jump simple calendar trends. I'm not going to argue for or against any indicator or any piece of information. If another person finds it to be useless, then ignore it.

botanist

Hello RedTiger, I didn't mean to imply not being grateful for your generosity in sharing that data, which is thought-provoking to say the least. Only I'm just skeptical about any implications, and the presence of that material in this forum means it's up for open discussion. Aren't calendar months relatively arbitrary in regard to social phenomena such as gold bullion prices, and might we get a somewhat different chart if the time slots were changed by moving them back about ten days to the signs of the zodiac, thus corresponding with horoscopes? Or if the data were spread out into units of weeks, or compressed into seasons? Or if the charts were modified to eliminate major effects of singular events, events apparently detached from seasonality, which could drastically skew the data, such as the 9-11 attacks might have been able to do?

edmundfitzgerald

<< <i> But, can we honestly apply seasonality to bankrupt banks, insolvent nations, and near worthless fiat currencies?

roadrunner >>



Bingo

RedTiger

<< <i>

<< <i> But, can we honestly apply seasonality to bankrupt banks, insolvent nations, and near worthless fiat currencies?

roadrunner >>



Bingo >>



I would say yes. There are seasonal cycles related to government budgets, tax receipts, agricultural harvests, weather related disasters, and a thousand other major and minor events. Certain government leaders have also been known to consult astrologers when choosing the date to make a big decisions.

Seasonality may be down the list for me as far as indicators, but I still find it useful and still look at it. Would a person rather trade or invest with a tailwind or a headwind? Would they like to have the odds in their favor or against them? Would they rather just go blind or by seat-of-the-pants, or have a working knowledge with actual data about seasonal trends? Again, I don't need to convince anyone. If it doesn't work for you don't use it.

edmundfitzgerald

<< <i> Would a person rather trade or invest with a tailwind or a headwind? . >>



A trader mentality is totally different from an investor mentality. I don't trade anything. That's for people who don't like
to sleep well at night.

Long term investors usually work for a company and get some shares each paycheck. These shares accumulate as the company grows. The worker/investor desires to see the company grow so his profits can double, triple, quadruple into retirement.

It's the same with gold. Just buy some every two or three months until you die. You'll sleep great with this program, and you'll
care less about futures and current market trends.

RedTiger

Worth a bump to the top because of chart #3 in the first post of the thread that says July and October are seasonally the best months to buy gold stocks. Traders do seem to be jumping the trades, so if that holds, right now is a decent time to buy gold stocks, especially on any minor weakness.

As always, the caveats are that seasonal trends are easy to spot and backtest. Once results are published (all those graphs are published data that many folks have seen), traders tend to jump the trades, making simple calendar tendencies less likely to work in the future.

roadrunner

Adam Hamilton had a nice article this week on gold seasonality. He fully expects the summer to be generally lackluster for gold and gold stocks because of no true increasing gold demand factors. Of course the black swan currency event or missile firing can always ignite PM's at any time. Hamilton is biding his time waiting for the gold stock bargains that usually come in July and August.

Considering that GDX and GDXJ are both up around 20-25% over the past month or so, I'd be leery of jumping into gold stocks right at this time. Wouldn't mind a decent pullback first. Certainly there are some specific miners that are probably great values right now but one has to be a good picker to find them. The deflationary drops in May and early June really hammered the gold stocks, but they have come back strong with some even making 52 week highs already.

roadrunner

RedTiger

Here is the Adam Hamilton article (link). There are three charts with his article. The charts seem to indicate that waiting for late August, early September is the better play, and that silver and gold stocks have a slightly bearish bias for the other summer months. Again traders need to keep in mind that others are jumping the trade, that if late August is the best time to get in, early August or even July might be the realization.

In my trading account, I currently have very little gold exposure. If we do get some quiet time, with a slight downward bias it could be a very good time to build some positions for a September liftoff. I know many have a much shorter time frame than that.

meluaufeet

I believed, right or wrong, that the summer drop during an even year, would occur... therefore I was planning to trade-out at least half of my paper positions and buy physical during/after the cycle...

I'm still watching the premiums in Central Fund of Canada... I have my trigger points; it just hasn't happened. Personally, I've held GLD since inception, and I can't wait to move on.

European physical buying has taken me by surprise... jmho

As I said before... "plans can change... and often do".

OPA

2% gain for June this year .... if this is the worst....I'd love to see the best.

Ciccio

TTT

September has been pretty good.
We have until tomorrow to sell our gold and buy it back next month!
How the election race can change the trend in october?

nibanny

Found this old thread and interesting charts. It looks like the rule still applies.
Will be March a good month to add to the pile?

PS: curious that I was the last buping it with my previous nickname!

nibanny

Am I the only one who follow this old thread and makes money selling in September and buying back in October?!