Gold Seasonality in Perspective
03/12/2014 7:00 am EST
If you're currently bullish on precious metals, you might want to consider what the data say gold bought this month will be worth by year's end, says Jeff Clark of Casey’s Gold & Resource Report.
Many investors, especially those new to precious metals, don't know that gold is seasonal. For a variety of reasons, notably including the wedding season in India, the price of gold fluctuates in fairly consistent ways over the course of the year.
This pattern is borne out by decades of data, and hence has obvious implications for gold investors.
Can you guess which is the best month for buying gold?
When I first entertained this question, I guessed June, thinking it would be a summer month when the price would be at its weakest. Finding I was wrong, I immediately guessed July. Wrong again, I was sure it would be August. Nope.
Cutting to the chase, here are gold's average monthly gain and loss figures, based on almost 40 years of data:
Since 1975—the first year gold ownership in the US was made legal again—March has been, on average, the worst-performing month for gold.
This, of course, makes March the best month for buying gold.
But: averages across such long time frames can mask all sorts of variations in the overall pattern. For instance, the price of gold behaves differently in bull markets, bear markets, flat markets, and manias.
So I took a look at the monthly averages during each of those market conditions. Here's what I found.
Key point: The only month gold has been down in every market condition is March.
Combined with the fact that gold soared 10.2% the first two months of this year, the odds favor a pullback this month.
And as above, that can be a very good thing. Here's what buying in March has meant to past investors. We measured how well gold performed by December in each period if you bought during the weak month of March.
Only the bear market from 1981 to 2000 provided a negligible (but still positive) return by year's end for investors who bought in March. All other periods put gold holders nicely in the black by New Year's Eve.
If you're currently bullish on precious metals, you might want to consider what the data say gold bought this month will be worth by year's end.
Regardless of whether gold follows the monthly trend in March, the point is to buy during the next downdraft, whenever it occurs, for maximum profit. And keep your eye on the big picture: gold's fundamentals signal the price has a long climb yet ahead.
Everyone should own gold bullion as a hedge against inflation and other economic maladjustments and gold stocks for speculation and leveraged gains.
The greatest gains, of course, come from the most volatile stocks on earth, the junior mining sector.
By Jeff Clark, Editor, Casey’s Gold & Resource Report