Gold’s Seasonal Weakness Coming To An End Soon?

From Sean Brodrick: Boy, gold is having a tough slog in April — and that comes on the heels of rough March.

This is no surprise for calendar traders, though. They know that the best time of the year for gold is yet to come.

And by that, I mean it’s well-known that gold performs better in the second half of the year.

This is due to seasonal buying. In August, jewelers around the world traditionally stock up for various cultural holidays. These include Muslim Ramadan, Hindu Diwali, Christmas, and the New Year in China.

This doesn’t mean gold demand and price must rise in the third quarter — it didn’t last year — but it’s more likely to.

However, the worst bear market in precious metals in living memory has taken its toll. Let me show you a chart and you’ll see what I mean.

Data source: Stockcharts

This is gold performance by month from 2006 to 2016. The chart separates the performance of gold by individual months. So all the January performances are averaged together, and so on.

Heck, looking at that, you can’t be blamed for thinking you don’t want to stick around for May.

But this is the bear-market effect. It has warped the regular market trend. Take a look at gold performance over the longer term — from 1975 to 2016.

Data source: LBMA

You can see that March and April are traditionally months when gold goes down. Gold historically pops higher in May … but the real blast-off comes in the third quarter.

This doesn’t mean gold demand and price must rise in the third quarter — it didn’t last year — but it’s more likely to.

We just exited a 4½-year long bear market in gold. That dragged down the metal’s seasonal performance. And because miners are leveraged to the metal, it hammered mining shares lower.

Now, we’re back in a new bull market. So I would look for a return to the normal trend. That means strong periods of outperformance in the metals and the companies producing them, especially in the second half of the year.

Heck, we may even see better-than-average performance. That’s what bull markets are all about.

The SPDR Gold Trust ETF (NYSE:GLD) closed at $120.77 on Friday, up $0.38 (+0.32%). Year-to-date, GLD has gained 10.18%, versus a 6.51% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #3 of 33 ETFs in the Precious Metals ETFs category.


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