SentimenTrader says gold and mining stock are poised to rally as we head into 2023.
Gold’s positive window combined with trend
December 17 (King World News) – Jason Goepfert at SentimenTrader: Last week, Jay wrote about a seasonal anomaly for gold mining stocks. Now, let’s turn to the yellow metal itself. The chart below shows the annual seasonal trend for gold. We are about to enter what is typically one of the most favorable times of the year for gold.
Gold Entering Very Strong Seasonal Period
The period in question begins on the close of Trading Day of the Year #249. It extends through the close of TDY #39 of the following year. For 2022-23 this period extends from the close on December 15 through the close on February 23 next year.
The chart below displays the cumulative growth of $1 invested in gold bullion held long during these seasonal windows starting in December 1975.
Investments In Gold In December Since 1975 Have Yielded Very Strong Gains
Gold rallied 60% of the time during these windows, which is decent. Its average return during the winning years was nearly twice as large as the average loss during the losing years. While it did suffer a couple of large losses, it was much more common to see large gains.
Gold is a market that typically trends well.
- We will call the price trend favorable if gold is trading higher than it was 252 trading days prior
- We will call the price unfavorable if gold is trading lower than it was 252 trading days prior
The blue line in the chart below displays the cumulative growth of $1 invested gold only when a) gold is higher than it was 252 days prior, and b) the current TDY is greater than 249 or less than 39 (blue line), versus the original results shown above (black line).
As you can see, trading a long position in gold during the seasonally favorable period only if the price is in an uptrend appears to improve overall long-term results.
Adding the price filter improved the winning percentage to 77%, and the average gain during winning years vastly outpaced the losses during losing ones. And there was a much greater chance of a big win than a big loss…
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For the GLD exchange-traded fund, Jay noted that the favorable year-end/new-year period is slightly different and extends from the close of TDY #246 through the close of TDY #36 of the following year. For GLD, the seasonally favorable period this year extends from the close on December 22 through the close on February 23 next year.
The chart below displays the cumulative growth of $1 invested in GLD only during this seasonally favorable period.
It resulted in 15 gains out of 18 years, with much better average gains than average losses.
A seasonal tailwind should help gold mining stocks continue their recovery
The long-term trends of many gold mining stocks have improved to the point where more than half of them are regularly trading above their 200-day moving averages. This is a stark change from October, when virtually all mining stocks were below their long-term trendlines.
There have been two similar scenarios in recent decades. In 2009, it equated with the end of the bear market. In 2014, miners took another hard leg down before bottoming. Not much help there.
The table below shows every time in the past 40 years when the percentage of mining stocks trading above their 200-day average cycled from below 15% to above 50%. To weed out some of the most volatile periods, we use a 10-day average of the indicator.
Over the next two months, the HUI Gold Bugs Index tacked on further gains only 29% of the time. Across all time frames from two weeks and beyond, the risk/reward was horrid.
But if miners showed a positive, or very slightly negative, return over the next couple of months, they invariably showed positive returns over the next year. Part of that is tautological since a positive two-month return automatically helps to generate a positive twelve-month return. But in every case, the returns increased, usually substantially. This is another example of why Jason Goepfert is the best in the world at what he does – providing actionable market data. To subscribe to the internationally acclaimed work Goepfert produces at SentimenTrader CLICK HERE.
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