Gold Stocks’ Autumn Rally 6

This chart averages the individually-indexed full-year gold performances in those bull-market years from 2001 to 2012 and 2016 to 2020. 2021 isn’t included yet since it remains a work in progress. This bull-market-seasonality methodology reveals that late summers are when gold’s long parade of big seasonal rallies really gets underway. That starts with the major autumn rally which is born in gold’s summer doldrums.

2020 proved an amazing year for gold, with this leading alternative investment blasting 25.1% higher! At gold’s August-2020 all-time-record peak before the subsequent healthy correction, this metal had soared a huge 35.9% year-to-date. And from March 2020’s stock-panic-driven low to that last upleg topping, gold clocked in with a giant 40.0% gain in just 4.6 months! Any way you slice it, gold enjoyed a phenomenal year.

Such outsized performance really skews the indexed seasonal average, even though 2020 was the 17th year added to this modern-gold-bull span. So I included a new data series in these charts, the light-blue lines showing pre-2020 seasonality before last year entered the mix. Gold’s huge gains during that crazy pandemic year really shifted its seasonal average considerably higher, which certainly doesn’t happen often.

Overall across these last 17 gold-bull calendar years, gold averaged major 15.6% gains. With this kind of growth rate compounded, it takes less than five years for gold prices to double. That has held true during gold’s current bull too, as gold powered from $1,051 in December 2015 to $2,062 in August 2020. That’s up 1.96x in 4.6 years! Gold’s strong seasonals are the impetus behind gold stocks’ powerful seasonal rallies.

Gold’s autumn rally technically starts with its summer doldrums bottoming in mid-June. But summers for gold have often been sideways-grindy affairs. 2019 and 2020 both proved exceptions, seeing strong gold surges on momentum-fueled investment demand. This current summer 2021 had plenty of potential to see that summer strength flare again, but an absurd Fed-rate-hike scare in mid-June initially scuttled that.

The Fed’s Federal Open Market Committee met for another monetary-policy meeting then and changed nothing. The FOMC kept its hyper-easy zero-interest-rate policy and $120b of monthly quantitative-easing money printing in place indefinitely. There were no hints at all of rate hikes or tapering QE bond-buying. But top Fed officials’ individual projections of future rates came in slightly more hawkish than expected.

Just a third of those guys thought the Fed might need two quarter-point rate hikes way out into year-end 2023. Not only is that an eternity away in the markets, the Fed chair himself warned to take that so-called dot plot “with a big grain of salt.”Even though it has proven notoriously inaccurate at forecasting future federal-funds-rate levels, prospects for distant-future rate hikes scared speculators into dumping gold futures.

That hammered gold 5.2% lower in just three trading days after that nothing burger FOMC decision! Gold soon bounced and recovered into mid-July, but remained well below pre-hawkish-dots-scare levels. So though this year’s gold autumn rally got off to a slow start, it actually has bigger upside potential launching off such anomalous lows. Gold’s tendency to mean revert higher after sharp selloffs should fuel bigger gains.

During these modern gold-bull years, gold’s autumn rally averaged strong 6.4% gains between mid-June to late September. But those certainly weren’t linear over that span, tending to cluster around August. In June, July, and August proper, gold’s average gains from 2001 to 2012 and 2016 to 2020 weighed in at +0.5%, +1.1%, and +2.1%. Gold’s autumn rally tends to accelerate as summers mature, especially in August.

That’s certainly good news this year after gold’s Fed-gold-futures purge in mid-June. Late summers are when massive Indian seasonal gold demand starts mounting, from both post-harvest and pre-wedding buying. And that could be considerably bigger than usual in this imminent August 2021. Not only are gold prices relatively low which attracts shrewd price-conscious Indians, but there is catch-up buying to do.

Indian gold dealers reported demand all but vanished in May, due to soaring COVID-19 cases then and new lockdowns in response. Indians even ignored a big mid-month Hindu festival that usually drives outsized gold demand. So Indian gold experts expect to see large catch-up buying unfold during gold’s autumn rally. Indian gold jewelry demand is the second-largest in the world after China, utterly massive.

That alone should push gold prices higher between now and that late-September autumn rally peak. As gold continues recovering and mean reverting higher, that will attract capital inflows from the two groups of American traders who dominate gold’s short-term fortunes. They are the gold-futures speculators who drove gold’s hawkish-Fed-dots plummeting, and gold investors who have largely been ignoring gold ever since.

The specs puked out the equivalent of an enormous 89.7 metric tons of gold in the week of that FOMC decision, and another 22.6t the following week! That left their total longs and shorts running 0% and 79% up into their past-year trading ranges. The most-bullish-possible near-term setup for gold is 0% longs and 100% shorts, indicating selling exhaustion. These guys have room for massive buying to normalize their positions.

At that point specs needed to buy the gold-futures equivalent of 404.0t of gold to push their bets back to levels where major gold selloffs grow increasingly likely! For comparison, gold’s young upleg interrupted by those hawkish Fed dots powered 13.5% higher between early March to early June on just 125.3t of spec gold-futures buying. As of the latest weekly positioning report, they still have room to buy another 300.0t!

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