In statistics, many time series exhibit cyclic variation known as seasonality. In my market research days, seasonality was a very important and accurate predictive indicator of future sales for my clients. This data was used to determine production, inventory, sales forecasts and strategically to determine the best times to promote products or offer price discounts.
In the precious metals market, analysts often mention gold’s seasonality and refer to the Summer doldrums as a buying opportunity and the Winter months at the high season. To verify gold’s seasonality and look for opportunities to profit from the trends, I decided to compile that data and create some charts.
First, let’s take a look at gold’s price indexed across the various months of the year. 100 is the baseline or average monthly price for the year. A reading of 110 would indicate the price is 10% above baseline and an index of 90 would indicate the gold price is 10% below baseline.
The striking trend in this chart is the upward trend of the index from the beginning of the year to the end of the year. This occurred in every calendar year except 2008, when the financial crisis pulled down all investment classes (yellow line). Other than this outlier, we can see that the gold price is typically 5-10% below average during the first few months of the year and 5-15% above average during the last few months of the year.
The only problem with this chart is that gold is in a secular bull market that is steadily advancing every month. Thus, part of the reason for the higher indices during the later months is simply because they are later in the year or more recent in time. So, I decided to slice the data another way and take a look at monthly change versus previous month. This gives us a more recent and relevant baseline to use in evaluating gold’s price seasonality. The following chart averages the monthly change (versus previous month) over the past 10 years.
The above chart shows that gold only has two months with negative average gain, with 0.5% being the worst month during August. This reinforces just how strong the gold bull market has been, given that only two months show losses and those losses are tiny compared to the gains in other months. The highest monthly gains all occur during the Winter months (November – February) and the slowest growth occurs in the Spring/Summer months (March and August).
The data table for the above chart can be found below. This shows a few outliers such as May 2006 growth of 10.6%, which explains the May spike that occurs in the middle of the slow growth season. Similarly, the -11.8% drop in June of 2006 is responsible for what would otherwise be a very strong month for gold. In fact, removing this outlier leaves June with average growth of 1.1%.
I also added a row showing what percent of the time gold advances in a given month. Further testament to the power of the current bull market is the fact that April is the only month where gold has declined more often than advanced over the past ten years. November, December and January not only have the largest percentage gains, but also are the months when gold advances most often. In fact, gold advances 88% of the time during November and December, with the only declines occurring during the 2008 financial crash.
Bottom Line
Long-term investors looking to buy the dips are most likely to have success during the months of March, April, May and July. Short-term traders should look to buy during these months and sell during February of each year – a recipe that the data suggests has a high probability of success. Regardless of your investment timing, this data demonstrates the robustness of the bull market in precious metals. 10 out of 12 months produce positive gains and only one month, April, has a history of declining more than it advances.
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