Year to date, the price of gold is up 12%. This is not unusual: the yellow metal also had a strong start into 2016, rising 18% over the same period.
So is there a seasonal pattern to the gold price? To answer that question, we dissected gold’s performance dating back to 1975 and identified some trends investors can use to their advantage.
1. March/April Are Gold’s Worst Months… And The Best Time To Buy
Since 1975, March has been the worst month for gold, followed by April as the second-worst.
In contrast, September has been the best month for gold over the past 41 years. Coincidentally (or not), September is also the worst month for the S&P 500.
As the chart shows, three-quarters of gold’s top-performing months are in the latter half of the year.
Based on this, an inexperienced investor might conclude that you should sell before the bad months (March, April) and buy prior to the good months (August to October). However, as Rick Rule, CEO of Sprott Global Resource Investments, says, “You’re either a contrarian, or you will become a victim.”
So the gold price is usually at its lowest point in March and April, which makes these two months the best time to buy.
In contrast, when gold has been rising steadily through the year into October, that may be a good time to sell.
Given gold’s attribute as a long-term store of value, we don’t recommend trying to trade it. However, when you want to liquidate some of your holdings, following seasonal patterns can prove very lucrative, as the next chart demonstrates.
2. Buy The Spring, Sell The Fall
If you had simply bought gold on April Fool’s day and sold it on Halloween every year since 1975, you would have made an average return of 4.6%.
Not a bad return on your money for two days’ worth of work and seven months of tying up your money.
We think you should hold your gold for a lot longer than seven months. Nonetheless, this four-decade-long pattern suggests that the gold price will repeat its pattern again this year.
The next chart amplifies this point.
3. The Only Quarter In Town
Since 1975, the second quarter of the year has been by far gold’s worst… with returns dead flat over the 41-year period. On the flip side, the third quarter has been the best, outperforming its closest rival, Q4, by a whopping 40%.
Given the clear seasonal patterns the gold price has exhibited over the past four decades, how can investors take advantage of it in 2017?
Add Gold to Your Portfolio Now
Based on gold’s seasonal patterns, adding bullion to your portfolio sometime in the next few weeks could prove a profitable endeavor.
In comparison, since making multi-year highs in March, the 10-year Treasury yield (which moves inversely to its price) is down 15%. Also, after roaring higher post-election, the S&P 500 has moved sideways since late January.
Considering gold’s recent rise, many investors are waiting for a pullback. But armed with the knowledge that the lows usually occur in the spring, you can take the contrarian approach and “buy low” right now.
Given that the reflation trade is all but dead in the water, you may be able to “sell high” in the not-too-distant future.
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Article by Stephen McBride, Hard Assets Alliance