April Through September is Historically A Weak Period For Gold And Gold Equities
RBC Capital Markets has a research piece on the poor returns that gold and gold stocks generally offer during the summer months.
Why is Gold Weaker? – in our view, the weakness in gold bullion is mainly due to depressed activity in the physical market for gold in the summer months, as global jewellery manufacturers are typically not very active during the period.
While we do not view the fabrication demand for gold to make jewellery as a driver for increased gold prices, we do view the lack of a supporting market for physical gold as a hindrance to significant positive moves in the gold price by investment and/or speculative demand.
Summer Doldrums – A Pretty Compelling Seasonal Pattern
From Exhibits 1-4 below, one can see that in very few years have gold prices and/or gold equities appreciated over the summer months in the northern hemisphere (charts all use the April 1st gold price as the reference point for relative performance). April/May strength has usually led to June/July weakness, with really only 2003 and 2005 showing any kind of strength over the past 14 summer periods. 10-20% declines look to be the average, with a number of years realizing deeper pullbacks (1996, 1998, 1999, 2002, 2006, and 2008). The XAU is the Philadelphia Gold Index, which includes major gold producers, but is heavily weighted towards the larger cap North American names (Barrick, Freeport, Goldcorp, and Newmont represent 60% of the index). The HUI is the AMEX Gold Bugs Index, which is has a non-hedger focus and also includes non-North American constituents (Africans and Buenaventura).
Exhibit 1: Summer Doldrums: 1995-1998
Exhibit 2: Summer Doldrums: 1999-2002
Exhibit 3: Summer Doldrums: 2003-2006
Exhibit 4: Summer Doldrums: 2007-2009