Trader’s Narrative

While we’re on the subject of seasonality and how September is the albatross around the stock market’s neck these days, I’d be remiss to not point out that what has been historically negative for equities has been a boon for gold and gold stocks.

Last year, I also pointed out the positive seasonality of gold in September (and the remaining months left in the year). But, as measured by the Philadelphia Gold Bugs Index (HUI) gold stocks didn’t follow their historical path and finished the month pretty much unchanged. However, in mid-September there was a rally that took the Gold Bugs index 35% higher within the month.

In any case, here is a chart of the monthly performance of gold for the past 5 and 15 years:

If you compare this chart with a longer duration seasonality chart you’ll notice that during this current super-bull market for gold (which started in 2000) seasonality has shifted slightly. For these most current years (red line) there are really two big waves of positive seasonality for gold and gold stocks. The first is about to start while the second comes after a correction in October and lasts from mid-October to February of the following year.

Here’s a chart of the Gold Bugs index with the past two September’s and this year’s marked by a green arrow:

I didn’t bother marking the obvious triangle pattern that has formed in the gold stocks index. Prices are getting coiled into a spring and will potentially break out. However, over-head resistance is just 100 points higher at 475-500 - where the Gold Bugs index hit a wall early last year.

Remember, seasonality, while having a powerful and undeniable influence, is a secondary driver of prices. It is more helpful to think of it as context for the actual analysis of trend.