Gold Stocks’ Spring Rally 6

Gold’s last mighty bull market ran from April 2001 to August 2011, where it soared 638.2% higher! And while gold consolidated high in 2012, that was technically a bull year too since gold just slid 18.8% at worst from its bull-market peak. Gold didn’t enter formal bear-market territory until April 2013, thanks to the crazy stock-market levitation driven by extreme distortions from the Fed’s QE3 bond monetizations.

So the bull-market years for gold in modern history ran from 2001 to 2012, skipped the intervening bear-market years of 2013 to 2015, then resumed in 2016 to 2021. Thus these are the years most relevant to understanding gold’s typical seasonal performance throughout the calendar year. We’re interested in bull-market seasonality because gold remains in its latest bull today and bear-market action is quite dissimilar.

Prevailing gold prices varied radically through these modern bull years, running between $257 when gold’s last secular bull was born to early August’s newest record high of $2,062. All those long years with that vast range of gold levels have to first be rendered in like-percentage terms in order to make them perfectly comparable. Only then can they 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 regardless of price levels. So gold trading at an indexed level of 105 simply means it has rallied 5% from the prior year’s close, while 95 shows it is down 5%.

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 gold’s spring rally is its last push higher before the summer doldrums arrive. While this is gold’s smallest seasonal rally of the year, the gold stocks greatly leverage it.

(Click on image to enlarge)

2020 proved an amazing year for gold, with this leading alternative investment blasting 25.1% higher! At gold’s early-August all-time-record peak before the recent healthy correction, this metal had soared a huge 35.9% year-to-date. And from mid-March’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 added a new data series in these charts, the light-blue lines showing last year’s seasonality before 2020 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’s 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 fuel behind gold stocks’ powerful seasonal rallies.

Gold’s own spring rally generally starts in mid-March, after the seasonal pullback following the winter-rally topping in late February. That has pushed gold an average of 1.7% lower in these modern bull-market years. Then from mid-March to early June, gold’s spring rally has averaged relatively-modest 3.8% gains. That makes for gold’s weakest seasonal rally, way behind the winter and autumn rallies’ +8.9% and +6.4%.

In March, April, May, and June, gold has averaged monthly performances of -0.4%, +1.8%, +0.8%, and +0.5%. April is the linchpin of gold’s spring seasonal rally, clocking in at this metal’s 4th-best month on average. But this year’s spring rally has much-greater upside potential than usual. Like many things in the financial markets, seasonality tends to mean revert and overshoot after being forced out of whack.

Normally that massive 8.9% winter rally is gold’s most-powerful seasonal one, running from about late October to late February. But because a healthy bull-market correction overrode that seasonal strength, gold actually fell 5.4% during its latest winter-rally span. Normally when that tops in late February, gold is up 5.3% year-to-date. But this year the yellow metal remained down 5.0% YTD, a serious seasonal disconnect.

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