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Gold stocks display strong seasonality because their price action amplifies that of their dominant primary driver, gold. Gold’s seasonality generally isn’t driven by supply fluctuations like grown commodities see, as its mined supply remains relatively steady year-round. Instead gold’s major seasonality is demand-driven, with global investment demand varying considerably depending on the time in the calendar year.
This gold seasonality is fueled by well-known income-cycle and cultural drivers of outsized gold demand from around the world. Gold’s biggest seasonal surge of all is just getting underway heading into winter. As the Indian-wedding-season gold-jewelry buying that normally drives this metal’s big autumn rally winds down, the Western holiday season ramps up. The holiday spirit puts everyone in the mood to spend money.
Men splurge on vast amounts of gold jewelry for Christmas gifts for their wives, girlfriends, and daughters. The holidays are also a major engagement season, with Christmas Eve and New Year’s Eve being two of the biggest proposal nights of the year. Something like a third to half of the entire annual sales of many jewelry retailers come in November and December! And jewelry historically dominates overall gold demand.
The World Gold Council closely tracks global gold supply and demand, publishing the latest data each quarter. During the last five calendar years, jewelry demand averaged 42% of overall total world gold demand. That is much larger than investment demand, which averaged 26% during that same 2019-to-2023 span. In the WGC’s latest 2024 data current to Q3, jewelry demand is tracking a similar 40% year-to-date.
The usual frenzied Western jewelry buying heading into Christmas shifts to pure investment demand after year-end. That’s when Western investors figure out how much surplus income they earned during the prior year after bonuses and taxes. Some of this is plowed into gold in January, driving it higher. Finally gold’s big winter rally climaxes in late February on major Chinese New Year gold buying flaring up in Asia.
So during its bull-market years, gold has usually tended to enjoy powerful winter rallies driven by these sequential episodes of outsized demand. Naturally the gold stocks follow gold higher, amplifying its gains due to their excellent profits leverage to the gold price. Today gold stocks are now once again early on in gold’s strongest seasonal rally of the year, driven by this annually-recurring robust winter gold demand.
Since it is gold’s own demand-driven seasonality that fuels gold stocks’ seasonality, that’s logically the best place to start to understand what’s likely coming. This old research thread focuses on modern bull-market seasonality, as bull and bear price action are quite different. Gold enjoyed an epic 638.2% bull run from April 2001 to August 2011, fueling gold stocks skyrocketing 1,664.4% per their leading HUI index then!
Following that secular juggernaut, gold consolidated high before starting correcting into 2012. But the yellow metal didn’t enter formal bear territory down 20%+ until April 2013. That beast mauled gold on and off over several years, so 2013 to 2015 are excluded from these seasonal averages. Gold finally regained bull status powering 20%+ higher in March 2016, then its modest gains grew to 96.2% by August 2020.
Another high consolidation emerged after that, where gold avoided relapsing into a new bear despite a serious correction. Later the yellow metal started powering higher again, coming within 0.5% of a new nominal record in early March 2022 after Russia invaded Ukraine. So 2016 to 2021 definitely proved bull years too, with 2022 really looking like one early on. Then Fed officials panicked, unleashing market chaos.
Inflation was raging out of control thanks to their extreme money printing. In just 25.5 months following March 2020’s pandemic-lockdown stock panic, the Fed ballooned its balance sheet an absurd 115.6%! That effectively more than doubled the US monetary base in just a couple years, injecting $4,807b of new dollars to start chasing and bidding up the prices on goods and services. That fueled an inflation super-spike.
With big inflation running rampant, Fed officials frantically executed the most-extreme tightening cycle in this central bank’s history. They hiked their federal-funds rate an astounding 450 basis points in just 10.6 months, while also selling monetized bonds through quantitative tightening! That ignited a huge parabolic US-dollar spike, unleashing massive gold-futures selling slamming gold 20.9% lower into late September 2022.
That was technically a new bear market, albeit barely and driven by an extraordinary anomaly that was unsustainable. Indeed gold soon rebounded sharply, exiting 2022 with a trivial 0.3% full-year loss. Gold kept on powering higher, reentering bull territory up 20.2% in early February 2023! So I’m also classifying 2022 as a bull year for seasonality research. Gold’s modern bull years include 2001 to 2012 and 2016 to 2023.
Prevailing gold prices varied radically across these secular spans, running just $257 when gold’s epic 2000s bull was born to October 2024’s latest record high of $2,772! That vast range of gold levels spread over all those long years has to first be rendered in like-percentage terms in order to make them perfectly comparable with each other. Then they can 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. So gold trading at 110 simply means it has rallied 10% off the prior year’s close. Gold’s previous seasonality before 2023 was added is shown in light blue.
Gold’s performance has been phenomenal in recent decades, averaging impressive calendar-year gains of 13.7% through 20 of the last 23 years! And the great majority of this span came before the Fed more than doubled the US money supply, fueling the raging inflation since. The resulting really-high general price levels are still rising, making modest 5%-to-10% portfolio gold allocations essential for all investors.
Seasonally gold enjoys three distinct rallies occurring in autumn, winter, and spring. Their average gains from 2001 to 2012 and 2016 to 2023 clocked in at 4.8%, 8.4%, and 3.5%. Thus gold’s young winter rally has proven its strongest seasonal one of all, achieving gains doubling the other two’s average! This winter rally tends to start marching in late October, and then power higher on balance until late February.
Given gold’s record-shattering run this year, 2024’s winter-rally setup for gold is more complicated than usual. Gold did experience a 2.4% pullback into early October. That was considerably bigger than the 1.4% seasonal average between late September to late October, but really mild considering gold’s unique setup this year. After soaring so far so fast in recent months, gold’s short-term outlook is quite bearish.
There are two main reasons, which I analyzed in depth in my gold-selloff-risk-high essay four weeks ago. First gold blasted up to rarefied extremely-overbought levels that hadn’t been seen for years. After similar past stretchings far above its baseline 200-day moving average, gold usually soon suffered big-and-fast selloffs. Last week and this week, gold surged way into dangerous territory at 1.178x and 1.183x its 200dma!
Second, speculators’ gold-futures positioning is extremely-overextended. These hyper-leveraged traders who often dominate short-term gold price action bought so aggressively their long contracts blasted up to their 5th-highest levels on record since early 1999! Previous super-high spec longs were soon followed by symmetrical mean-reversion dumping hammering gold lower. So big gold-futures selling could erupt anytime.
But remarkably it hasn’t despite plenty of major catalysts that have sparked it in the past! Since I wrote that essay, we’ve seen a big upside surprise in monthly US jobs, hotter CPI and PPI inflation prints, the US Dollar Index blasting higher in a strong bear rally, and futures-implied expected Fed rate cuts in 2024 and 2025 falling dramatically. Yet rather shockingly none of that shook loose any meaningful long liquidations.
Gold eluding that overdue selloff so far doesn’t mean it isn’t still coming, it could start any day now! But gold’s incredible resilience heading into its winter-rally strong season reveals big demand elsewhere. The World Gold Council has confirmed major gold buying from Chinese investors and central banks in 2024, and mounting Indian gold demand after big import-tax cuts and Middle Eastern demand on geopolitical fears.
After decades intensely studying, trading, and writing about this precious-metals sector, all my experience calls for gold still soon suffering a sizable rebalancing selloff. It will likely prove a larger pullback nearing 10%. But if that continues to tarry and gold’s winter rally this time around achieves those average 8.4% seasonal gains, we’d be looking at $2,825 gold. These coming months enjoy most of gold’s strongest seasonals.
Over this same modern-gold-bull-year span over the past quarter-century, January has been gold’s best calendar month by far averaging hefty 2.7% gains! November comes in second at 2.1%, while December narrowly misses third at 1.6%. These next few months have long been gold’s strongest seasonal cluster. These stiff tailwinds should help boost gold’s upside, either after that probable selloff or gradually over time.
And there’s an unprecedented driver that could short-circuit any futures selling to catapult gold way higher. Thanks to the greedy AI stock bubble, American stock investors have largely ignored gold’s entire upleg. Their gold portfolio allocations are effectively zero. The combined physical-gold-bullion holdings of the world-dominating GLD and IAU gold ETFs were worth $114b at this week’s latest record high of $2,786.
Yet that remains vanishingly-small in the context of the broader markets. The elite S&P 500 companies alone now command a staggering collective market capitalization of $52,099b. That implies American stock investors have a trivial 0.2% portfolio allocation in gold, which is nothing! Astoundingly they have yet to really start chasing this gold upleg, which is still likely coming as record gold prices win their attention.
Gold’s current monster upleg has soared an epic 53.1% higher over the past 12.9 months, the biggest in many years! Yet crazily GLD+IAU holdings have slipped 0.4% or 5.1 metric tons during that span. Gold’s last comparable monster uplegs that achieved many record closes like today’s both crested in 2020 at great 42.7% and 40.0% gains. Both of those giant uplegs were mostly driven by huge GLD+IAU-share buying.
American stock investors rushed to buy these dominant gold ETFs faster than gold was being bought, forcing them to shunt that excess demand into adding gold bullion. GLD+IAU holdings soared 30.4% or 314.2t during that first upleg, then skyrocketed a stupendous 35.3% or 460.5t in the second! Today’s gold upleg can still grow much larger as American stock investors inevitably return to start chasing gold’s gains.
Gold stocks are ultimately leveraged plays on gold, with their leading GDX gold-stock ETF amplifying its material moves by 2x to 3x most of the time. So gold stocks’ winter-rally performance this year depends on gold’s like usual. Because GDX was only born in May 2006, it remains too young for this secular analysis. So the classic HUI gold-stock index is used instead, which mirrors GDX with the same major components.
The major gold stocks of the HUI and GDX averaged excellent 22.2% gains through 20 of the last 23 years! With that kind of track record, it’s surprising this contrarian sector hasn’t been more popular. Naturally with gold blasting higher into uncharted territory, GDX is faring better than usual rallying 33.9% year-to-date. Yet gold stocks are greatly lagging their metal at 1.0x upside leverage in 2024, they need to catch up!
Usually amplifying their metal, gold stocks too have enjoyed three distinct autumn, winter, and spring seasonal rallies. Their average gains during those spans ran 7.4%, 12.7%, and 11.9%, leveraging gold’s seasonal rallies by 1.5x, 1.5x, and 3.4x. While gold stocks’ winter rally has proven their largest, it hasn’t been the strongest due to that lower leverage to gold. Gold stocks underperforming is largely psychological.
Traders’ apathy or bearishness on this high-potential sector is still festering from mid-2022’s extreme anomaly. Gold was just under nominal record highs in early March that year. Then the Fed kicked off that most-extreme tightening cycle in its century-plus history. That started with an extraordinarily-extreme 375 basis points off near-zero in just 7.6 months! That blistering hiking launched the US dollar stratospheric.
Resulting far-higher dollar yields catapulted the benchmark US Dollar Index an extreme 16.7% higher in just 6.0 months, to an extreme 20.4-year secular high! That unleashed withering gold-futures selling, crushing gold 20.9% lower narrowly into a bear in 6.6 months. That brutal maelstrom sucked in gold stocks, with GDX plummeting 46.5% in 5.3 months! The tremendous sentiment damage that wrought has yet to recover.
Even worse, this extreme anomaly hammering gold and its miners happened as US CPI inflation soared to its hottest levels since November 1981! If gold couldn’t rally in massive inflation, traders figured it was hopelessly broken and capitulated. Never mind gold and GDX have soared 71.7% and 101.6% since that craziness inevitably passed! But the bearish psychology that spawned lingers, retarding gold-stock upside.
Yet that pall should continue fading in coming months, as gold stocks’ winter rally is shaping up to be an exceptionally-strong one. Several major factors argue in favor for outsized gold-stock gains. Gold-stock prices remain far from reflecting gold’s record-breaking upleg, with GDX rallying 70.2% best over this past year for mere 1.3x upside leverage to gold’s 53.1%. That historical 2x to 3x yields 106% to 159% GDX gains!
Remember seasonal rallies are tailwinds but gold stocks’ primary sentimental, technical, and fundamental drivers are much more important. This sector is on the verge of a major tipping point where gold stocks start growing popular again. The growing gold bullishness as its big gains mount will spill into its miners’ stocks. That will fuel a powerful virtuous circle of buying begetting buying, traders chasing gold-stock upside.
Gold stocks’ massive secular breakout will accelerate that all-important herd sentiment shift. Just last week GDX achieved its highest close in 4.2 years, and was merely 0.9% under hitting a much-more-important 11.8-year secular high! Strong gold-stock technicals will attract interest in this sector’s incredibly-bullish fundamentals. The gold miners are now reporting their best quarterly earnings ever, truly epic.
The rich-and-fat profits driven by these dazzling record gold prices will force already-low valuations even lower. That’s despite the world’s largest gold miner just disappointing big. Super-major Newmont’s stock crashed 14.7% after reporting Q3’24 results! But that was NEM-specific as I analyzed in depth in our latest weekly subscription newsletter. Newmont has long underperformed, struggling with depletion and rising costs.
Newmont’s deadweight drag on GDX aside, the broader gold-stock sector is still going to report epic Q3 results. So this year’s winter-rally seasonal tailwinds are aligning behind very-bullish sentimental, technical, and fundamental gold-stock drivers. Thus GDX is very likely to achieve multiples of its usual winter-rally gains in coming months. At 2.5x upside leverage to gold’s gains so far, we’d be looking at GDX over $60!
Three of gold stocks’ best seasonal months of the year are clustered into this winter-rally span! This last chart uses a similar methodology to slice gold-stock seasonals into calendar months. There is no other time where gold stocks have such strong monthly seasonals. Traders are more likely to buy gold stocks during their winter rally, which should amplify those bullish sentimental, technical, and fundamental drivers.
On average in these same modern gold-bull years of 2001 to 2012 and 2016 to 2023, the HUI’s best calendar month has been November with 4.0% average gains! Then December and January follow not far behind at 3.3% and 3.1%, ranking as third and fourth respectively. Gold stocks enjoy their strongest cluster of seasonal gains of the year in coming months, which adds an additional layer of bullishness to them.
While market seasonality is interesting, we have to remember it’s only a secondary driver. But when strong seasonals align with bullish sentiment, technicals, and fundamentals, those tailwinds will boost sector gains. That’s sure the case heading into 2024’s gold-stock winter rally, tempered by one major caveat. When gold’s overdue pullback or correction arrives, it will suck in gold stocks to amplify its losses.
But that is more likely to interrupt this year’s winter rally than scuttle it. This healthy rebalancing selloff will be a good opportunity to add gold-stock positions. Our newsletter trading books are mostly full of the fundamentally-superior mid-tier and junior gold miners we’ve long specialized in, but we’ve been stopped out of other trades at great gains. I’m looking forward to gold retreating so we can reload and top off our trades.
The bottom line is gold and its miners’ stocks are entering their strong winter-rally seasonals. Those tailwinds are driven by outsized holiday gold-jewelry buying followed by new-year investment demand. While technically a rebalancing selloff remains overdue, gold is still likely to power higher on balance through 2024’s winter rally. American stock investors finally starting to chase gold should fuel big gains.
The gold stocks will mirror and amplify the metal which drives their profits like usual. But their winter-rally upside potential in coming months is much bigger than normal. Gold stocks have huge catch-up rallying left to do to reflect these dazzling record gold prices, which are fueling record earnings. GDX is breaking out in secular terms, which will attract increasing interest and capital inflows as gold stocks regain popularity.
(By Adam Hamilton)
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