Gold Stocks’ Summer Bottom

The gold miners’ stocks have drifted lower over the past month, slumping back to major support. This weakness has naturally intensified the bearish psychology engulfing this small contrarian sector, traders want nothing to do with it. Yet summers typically see gold and its miners’ stocks meander sideways to lower. These summer doldrums spawn the best seasonal buying opportunities of the year in gold stocks.
Seasonality is the tendency for prices to exhibit recurring patterns at certain times during the calendar year. While seasonality doesn’t drive price action, it quantifies annually-repeating behavior driven by sentiment, technicals, and fundamentals. We humans are creatures of habit and herd, which naturally colors our trading decisions. The calendar year’s passage affects the timing and intensity of buying and selling.
Gold exhibits high seasonality, which seems counterintuitive. Unlike grown commodities, the mined supply of gold is fairly constant year-round. But supply is only half of the fundamental supply-demand equation that drives pricing. Gold’s investment demand happens to be highly seasonal, and that’s what sets gold prices at the margin. Investors favor gold buying far more during some parts of the year than others.

This post was published at ZEAL LLC on July 7, 2017.