Gold-Stock Summer Lows
Gold-Stock Summer Lows by Adam Hamilton – GoldSeek
The gold miners’ stocks have been drifting sideways to lower like usual in their summer doldrums. They are likely near their major seasonal lows ahead of a strong autumn rally, a great buying opportunity. Gold rebounding higher will be the primary driver fueling the gold-stock advance, dispelling today’s bearish psychology. And strong Q2 production growth will likely play a sizable role in restoring favorable sentiment.
Market summers have long been gold’s weakest time of the year seasonally. Junes and early Julies in particular are simply devoid of the big recurring demand spikes seen during most of the rest of the year. With traders vacationing to take advantage of warm sunshine and kids being out of school, markets take a back seat. So there’s no outsized gold buying driven by income-cycle or cultural factors this time of year.
Back in early June I published my latest research on gold’s summer doldrums, which forecast the usual sideways-to-lower early-summer grind this year. And as goes gold, so go silver and the stocks of their miners. Gold stocks struggle to make any significant headway when gold is drifting listlessly, which of course really taints precious-metals sentiment. These summer doldrums simply have to be endured.
With 2018’s market summer half over, the gold stocks have tracked their typical seasonal trading pattern quite well. Both the benchmark HUI NYSE Arca Gold BUGS Index and the leading gold-stock ETFs have largely ground sideways as expected. They are the GDX VanEck Vectors Gold Miners ETF including larger companies, and the GDXJ VanEck Vectors Junior Gold Miners ETF which actually holds mid-tier ones.
While growing in popularity, these dominant gold-stock ETFs are relatively new. GDX and GDXJ were born in May 2006 and November 2009 respectively. While they closely mirror the HUI’s price action, they lack the extensive price history necessary to distill out seasonal trends. So this first chart updated from my summer-doldrums research uses the HUI to show gold-stock behavior in modern bull-market years.
Gold enjoyed a powerful bull market from 2001 to 2012, which catapulted the HUI an amazing 1664.4% higher over 10.8 years between November 2000 to September 2011! After gold’s own bull-market gain of 638.2% in roughly that same span, it rolled over into a brutal bear market from 2013 to 2015. Then gold started marching higher in a new bull that still persists, so bull-market years resumed from 2016 to 2018.
Gold stocks’ summer price action in all these modern bull-market years is rendered in this chart. All the yellow lines represent individual-year market summers starting with the HUI indexed at 100 as of the last pre-summer closes on Mays’ final trading days. This indexing normalizes very-different prevailing levels of gold-stock prices over the years, making them all comparable. A 5% summer rally shows up as 105 indexed.
All this normalized summer trading action from 2001 to 2012 and 2016 to 2017 is then averaged together in the red line, revealing gold stocks’ core underlying summer trend. Finally the current summer-of-2018 gold-stock price action is superimposed over the top in blue. The gold miners’ stocks are doing exactly what they usually do this time of year, drifting sideways to lower. That shouldn’t have surprised anyone.
The gold stocks rarely fare very well in Junes and Julies. On average the HUI rallied 0.8% in Junes in these modern bull-market years, before retreating 0.2% in Julies. That makes for the summer-doldrums drift clearly seen here. On average gold stocks slump 2.3% from the ends of Mays into their big seasonal lows in mid-Junes. This mean smoothes out a consolidation range mostly running +/-10% from Mays’ final closes.
While this summer’s gold-stock action has been weaker than the bull-year average, it still remains well within that trend. In this summer of 2018 the HUI fell 3.1% in June, driven by gold crumbling lower under extreme selling pressure from gold-futures speculators. Ultimately gold stocks mirror and amplify what gold is doing, since its price drives their profitability. Major gold stocks’ leverage to gold generally runs 2x to 3x.