Seasonal Gold Price Trends Favor Summer Purchases
It was June 2006…
In our analysis, we discovered that each and every year spanning 2001-2006, the gold market would show price weakness in the first two months of the summer. From there, prices moved decisively higher by year’s end, with the vast majority of the gains (better than two-thirds) for the full year (the lone exception, 2002) coming after the June/July swoon. This trend is clearly illustrated in the graphs to the right. On average, gold gained 11.8% over the last 5 months of those years, which annualized to an impressive 28.32% appreciation.
Needless to say, gold’s bull run did not end with that pullback in the summer of ’06. After bottoming in the $560 range, gold quickly rallied, and its meteoric rise since has caught the attention of even its most ardent critics:
Gold is slightly off after achieving an all-time high at $1572 per ounce this May and has begun to consolidate around the $1500 level. Many in the financial press are suggesting we have once again reached the end to the yellow metal’s bull market. They cite the recent price weakness along with hedge fund billionaire George Soros’ decision to liquidate the entirety of his position in the gold ETF as evidence that the market has reached a top. Yet none of the catalysts that contributed to gold’s rise over the past ten years have subsided. If anything, they have intensified.
Fast-forward to June 2011…
To the point, another notable hedge fund billionaire, John Paulson, showed no hesitation in retaining the entirety of his position in GLD. In fact, his ownership stake still represents the largest single holding in the ETF. In justifying his decision to skeptics, Paulson stated in an April interview with the Wall St. Journal, “The United States and the United Kingdom have flooded their respective economies with money in order to fuel a more-robust economic recovery. That rush of money will apply inflationary pressures on those economies, making gold poised to the hit the $4,000 mark in a few years.”
Over the full period of this decade-long study, gold has averaged annual gains of 17.42%. The average gain after the June/July swoon has been 11.46%. In other words, on average, just better than 2/3 of all annual gains over the past ten years in gold have come in the last five months of the year.