With gold forging deeper into record territory, interest in gold stocks is mounting. They’ve started to mean revert higher, on the way to catch up with and surpass the surging metal their profits leverage. The timing of this gold-stock upleg is fortuitous, coinciding with spring-rally seasonals. They’ll generate a strong tailwind on top of this sector’s primary drivers of battered sentiment, oversold technicals, and fantastic fundamentals.
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. Like clockwork these power major autumn, winter, and spring seasonal rallies in gold and thus its miners’ stocks. Interestingly market forces behind the latter are the least-understood out of all gold’s seasonal surges. Maybe that’s why this imminent spring rally has also proven gold’s weakest.
Yet surprisingly gold stocks still enjoy their best seasonal outperformance relative to their metal during these same coming months! So gold stocks’ spring rally has proven their strongest seasonal one during gold’s modern bull-market years. This contradictory mismatch between gold’s worst seasonal rally and its miners’ best one offers an important clue on the spring rally’s motivating impetus, sentiment is likely the key.
Traders’ psychology exceedingly influences their capital-allocation decisions. They won’t buy gold or gold stocks or anything unless they are optimistic prices will climb on balance. After dark cold winters in the northern hemisphere where the vast majority of the world’s traders live, spring naturally breeds optimism. Its glorious swelling sunshine and warming temperatures universally buoy the spirits of nearly everyone.
The lengthening daylight hours and improving weather from March to May bring joyful anticipation of the summer vacation season. That’s such a wonderful contrast to January and February, which often seem like nose-to-the-grindstone months of relentless busyness. With things looking up and traders generally feeling happier during springs, their optimism makes them more bullish on much including gold and gold stocks.
This glass-half-full sentiment leaves traders more willing to deploy capital to chase expected gains. And their optimistic buying feeds on itself, fueling virtuous circles of strength. The more traders buy gold and its miners’ stocks, the more they rally. Those resulting gains attract in still-more traders, accelerating the upside. Spring is exceptionally favorable for nurturing this positive psychological feedback loop in markets.
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 a mighty 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 then started 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 the March 2020 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 spike in the US dollar, unleashing massive gold-futures selling slamming gold 20.9% lower into early September.
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 mighty 2000s bull was born to March 2024’s latest record high of $2,194. 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 was 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%. Gold’s spring rallies tend to start in mid-March near its seasonal uptrend’s lower support. But gold got an early start this year after a mild pullback into mid-February. At worst gold merely slumped 4.2% on a parallel 3.9% US Dollar Index surge.
Gold’s seven-week dollar-driven pullback reversed into late February as the USDX began rolling over again. Then gold really started outperforming its nemesis, surging 2.6% in a couple weeks where the USDX just retreated 1.0% at worst! Gold roared into March like a lion, goosed by surprising Fedspeak. On March 1st a Fed governor gave a speech saying he wanted to boost the Fed’s short-term Treasury holdings.
But he was ambiguous on how that could be accomplished, so traders interpreted his comments as a hint more quantitative-easing money printing may be coming. So gold blasted 2.0% higher that day to its first new nominal record close since late December! That launched a glorious seven-trading-day streak of rallies to more record closes. Thus in 2024 gold’s spring-rally bottoming and subsequent spring rally arrived early.
Across the 20 bull-market years in this study, gold again averaged 3.5% spring-rally gains. But this year’s spring rally has already proven far stronger, clocking in up 10.2% at best as of mid-week! And this spring-rally span remains young, as gold has tended to power higher on balance until early June. So April and May are the heart of these spring-rally seasonals, witnessing average gold gains running 1.6% and 0.8%.
April is particularly bullish for gold, ranking as its third-best calendar month seasonally behind January and November! Because gold blasted higher earlier in March, it’s reasonable to wonder if some or all of its spring-rally gains were pulled forward. But remember seasonals are merely secondary tailwinds or headwinds, not primary drivers. Today’s bullish gold setup argues this upleg still has a long way to run yet.
Major gold uplegs are fueled by three sequentially-larger stages, gold-futures short-covering buying, gold-futures long buying, and investor buying. All are measurable, starting with the weekly Commitments of Traders reports detailing speculators’ gold-futures positioning. Their total short and long contracts have secular trading ranges, so positioning relative to those reveals how much probable gold-futures buying is left.
When today’s gold upleg was born near $1,820 in early October, speculators had room to do 79.4k contacts of stage-one short covering and another 150.2k of stage-two long buying. That added up to 229.6k, or the equivalent of 714.0 metric tons of gold. As of the latest CoT report current to March 19th, specs still had fully 45% remaining of that total-gold-upleg gold-futures buying! That was 102.5k contracts or 318.7t.
If you want to get up to speed on how leveraged gold-futures trading usually dominates short-term gold price action, I wrote a whole essay on that in late February. Gold uplegs’ three stages are telescoping, with the first two driving gold high enough for long enough to trigger the subsequent two. While stage-one and stage-two gold-futures buying are just over half done, vast stage-three investment buying hasn’t even started!
The best high-resolution daily proxy for gold investment demand is the combined holdings of the dominant GLD and IAU gold exchange-traded funds. As of midweek gold’s current upleg has powered up 20.6% at best since early October. Yet identifiable investment demand from American stock investors has been nonexistent. GLD+IAU holdings actually fell 4.1% or 52.2t in that span as the stock bubble distracted investors!
That’s exceedingly anomalous, unprecedented in this modern gold-ETF era. As investors haven’t even started deploying capital in gold yet, odds are this upleg still has a long way to run. Gold’s new records should really accelerate investment demand. Investors love chasing upside momentum, and new record highs generate increasing and bullish financial-media coverage making more investors aware of breakout surges.
This gold-record-momentum dynamic unleashing massive investment buying has fueled monster gold uplegs. Today’s gold upleg is the first one since 2020 achieving any record highs, let alone big streaks of them. Two gold uplegs peaked that year at huge 42.7% and 40.0% gains, roughly double the size of today’s upleg! Investors flooded back in with a vengeance to chase gold’s widely-covered new records.
Enormous stage-three gold investment buying fueled those mighty uplegs. GLD+IAU holdings soared 30.4% or 314.2t during the first and 35.3% or 460.5t during the second! Those gigantic builds are a stark contrast to today’s gold upleg suffering that crazy 4.1% or 52.2t draw so far. So whenever investors start chasing gold’s strong upside momentum, this upleg is going to grow much larger. That ought to happen soon.
Thus despite gold’s big spring-rally gains this year, they could get a heck of a lot bigger in April and May. Gold-futures speculators still have lots of room to continue buying, especially their stage-two longs. And American stock investors haven’t even started chasing gold yet. Their current allocations in gold are effectively zero, as evident in the ratio between the value of GLD+IAU holdings to the S&P 500’s market cap.
That gold-allocation proxy is currently running a trivial 0.2%! Even if American stock investors merely up their gold allocations to 1.0% as this stock-market bubble pops awakening a ferocious bear market, gold will skyrocket. So odds favor this year’s spring rally continuing to prove outsized relative to multi-decade gold-bull-year seasonal averages. That certainly bodes well for gold stocks in the next couple months.
Their leading GDX VanEck Gold Miners 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. For that we need the classic HUI gold-stock index which is functionally interchangeable with GDX, containing the same major gold miners. If gold continues powering higher this spring as it ought to, the gold stocks should surge dramatically.
Major gold stocks have averaged outstanding 22.2% gains during 20 of these last 23 years! With an epic 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. Perhaps because of that ethereal spring optimism, gold stocks’ outperformance of gold seasonally is much higher during its spring rally. Its sheer speed helps drive that.
Gold’s average autumn and winter rallies run 3.4 and 4.0 months, but its spring one is considerably faster at just 2.7 months. That condenses more gold-stock rallying into a shorter span, making for bigger gains sparking more greed to attract more traders quicker. Naturally gold stocks’ spring-rally timeframe closely matches gold’s, normally running from mid-March to early June. Like gold’s, 2024’s spring rally started early.
GDX bottomed in late February, and has since surged 20.1% higher at best. So far the gold stocks are still underperforming, only leveraging gold’s parallel advance by 2.0x. But gold-stock gains will really accelerate as gold continues powering higher. This sector is totally dependent on gold psychology, so the more bullish that grows the more gold-stock buying will result. It feels like a sentimental tipping point is nearing.
For nearly a quarter-century I’ve intensely studied gold, silver, and their miners’ stocks with the goal of profitably trading them. I’ve shared my research and resulting stock trades in our weekly and monthly newsletters. Their trading books are now full of fundamentally-superior smaller mid-tier and junior gold miners likely to see even-larger rallies. Our all-time realized gains are double long-term stock-market averages.
In my line of work, my ear is always to the ground. I’m always studying, listening, and watching, and gold and gold-stock psychology are shifting. This is evident in increasing e-mail flows from traders around the world, which are getting more positive. And in gold’s growing and more-bullish coverage on CNBC, Bloomberg, and in the Wall Street Journal. And in our surging newsletter sales as traders’ interest returns.
Speculators and investors alike are really starting to pay attention to gold and its miners’ stocks again. The faster and farther they rally, the more traders will rush to chase those gains stoking their greed. Nothing like this has played out during this spring-rally timeframe since 2020, the last time gold was forging into new-record territory in April and May. And boy those record-momentum-driven gains were huge.
From mid-March to late May that year, GDX skyrocketed an astonishing 95.8% higher on gold’s parallel massive 18.7% surge! While partially fueled by the mean-reversion bounce out of that year’s pandemic-lockdown stock panic, gold-stock upside leverage to gold exploded to 5.1x. Gold-stock enthusiasm and gains mount the longer gold rallies on balance. So while April is very strong seasonally, May is even better.
This chart carves up gold-stock seasonals into more-granular calendar months using this same indexing methodology. During these recent 20 gold-bull years, HUI and thus GDX have averaged 2.8% gains in April and huge 3.6% ones in May! The latter is actually gold stocks’ second-strongest month of the year seasonally after November. In May the major gold stocks have tended to amplify gold’s upside a massive 4.2x!
Gold stocks enjoy their fastest seasonal rallying of the year during spring. Again they’ve averaged 11.9% gains between mid-March to early June, a 2.6-month span. Annualized that equates to a 54.1% rate of ascent! These next couple months are the most-favorable time of the year to be heavily deployed in the gold miners. Whether due to general spring optimism or something else, gold stocks tend to really thrive.
With the lion’s share of this seasonally-strongest span still coming, it’s a great time to up your portfolio allocations to fundamentally-superior mid-tier and junior gold miners. They are in the sweet spot for big upside potential as gold powers higher. These smaller miners offer a unique mix of sizable diversified production, great output-growth potential, and smaller market capitalizations ideal for outsized gains.
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The bottom line is gold stocks usually experience a strong spring rally seasonally. This is driven by gold’s own seasonality, where outsized investment demand arises at certain times during the calendar year. Gold usually enjoys a solid spring rally likely fueled by the universal optimism this season brings. And since gold drives gold miners’ profitability, their stock prices naturally follow it higher amplifying its gains.
That infectious spring exuberance has proven very potent for gold stocks. Over the last quarter century of gold-bull years, the miners have outperformed their metal dramatically from mid-March to early June. No other seasonal surge rockets so fast! And given this year’s backdrop of gold’s first record-achieving upleg in years fueling mounting momentum-chasing buying, spring 2024 has big potential for exceptional gains.
Adam Hamilton, CPA
March 28, 2024
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