An Update on Seasonality of Gold Equities

Posted by Don Vialoux: Timing the Market

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The PDAC Curse continues! Canadian gold equities have a history of moving higher from the last week in December until the third week in February in anticipation of encouraging news to be released just before or during the annual Prospectors and Developers Association Conference in Toronto early in March. Thereafter, Canadian gold equities tend to move lower. They followed their seasonal pattern once again this year. The TSX Gold Index from its low on December 29th to its high on February 23rd gained 13.4%. Subsequently, the Index plunged 13.4% by this Wednesday to reach a 20 month low. Moreover, next major support for the Index on the charts is 14% below current levels.

Weakness in gold equities this week is related to a $US68 per ounce plunge in the price of gold from last Friday to this Wednesday. On Wednesday, gold fell below its 200 day moving average at $1,679, a technical level that previously had provide strong support. Gold was responding partially to strength in the U.S. Dollar following news that U.S. Non-farm Payrolls in February continued to recover from depressed levels. The U.S. Dollar also strengthened following encouraging news from the Federal Reserve on Tuesday confirming slow, but steady economic growth in 2012. The Federal Reserve also noted its intention to maintain an easy money policy until the end of 2014.

The TSX Gold Index did not respond well to the news. Weakness in the Gold Index was the main reason why the TSX Composite Index dropped sharply on Wednesday when major U.S. equities indices were reaching multi-year highs. Moreover, prospects for gold and gold stocks are not encouraging between now and November 6th, the day when the next U.S president is elected. The U.S. Dollar has a history of moving higher between the end of March and the end of October during a U.S. Presidential election year. Not surprising, gold and gold stocks have a history of moving slightly lower during this period. Normally, gold and Canadian gold stocks have a period of seasonal strength from the end of July to the end of September followed by a second period of strength from the beginning of November to the third week in February. The latter period is likely to be the better period for re-entering the gold trade this year.

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Preferred strategy is to look for better opportunities than gold and gold equities between now and November. Silver, platinum and their related equities are preferred over gold if your investment focus is on precious metals. Silver and platinum benefit from a growing demand for industrial purposes and have a history of outperforming gold between now and May..

The Gold Bugs Index fell another 33.44 points (6.56%) last week. It broke support at 477.93 to confirm an intermediate downtrend. Strength relative to gold remains negative.

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