Gold – GDXJ Junior Gold’s & GDX Gold Miners
GDX Market Vectors Gold Miners
HAC took a position in GDX towards the beginning of July. This has proven itself to be a very good entry point. Gold stocks have performed very well, but investors should note that the seasonal period for gold stocks is typically from July 27th to September 25th. Gold the metal has a similar period with its seasonal period lasting from July 12th to October 9th.
This year gold stocks are outperforming the bullion, despite bullion reaching all time highs. The gold (bullion) to gold stocks ratio chart illustrates that gold stock have recently started to outperform bullion. This is good news for the sector.
The difﬁculty with GDX is that October tends to be a weak period for both gold and gold stocks. In the past this has largely been the result of the European Central Banks, at this time of year, allocating the amount of gold each country can sell throughout the year. Historically, this has caused a the gold price to fall as the banks were eager to sell. Times have changed, and the central banks have not been selling their gold.
GFMS (Gold Fields Mineral Service) predicts that the world’s central banks will be net buyers of gold for the ﬁrst time since the late 1980s. In fact, only the International Monetary Fund appears to be a seller this year – its latest deal is a sale of 10 metric tons (321,500 ounces) this month to the Central Bank of Bangladesh (US Global
Despite the positive dynamics for gold and gold bullion, investors should consider taking proﬁts on the sector, particularly towards the end of the month. Using technical analysis should help in determining the if and when to exit the sector.
It is important to note that gold also does well during November and December. Historically, it has underperformed the markets, but it has been positive. Large moves can occur at this time of year if there is a lot of momentum behind gold and gold stocks.
Investors can consider exiting the position for the month of October and then reassessing at the end of October to determine if reentry is justiﬁed.
GDXJ Market Vectors Junior Gold Miners
HAC entered GDXJ (junior gold stocks) at the beginning of August and the sector has basically shot straight up. It has outperformed bullion and senior gold stocks, as junior companies have been the targets of takeovers.
The same seasonal comments that applied to GDX apply to GDXJ.
Most of the seasonal opportunities for October will be discussed in the next newsletter.
There are two sectors that investors should watch and consider in the second week of October if the market warrants such action – the technology sector and Canadian banks. The next newsletter will be published at the time when these sectors can start their outperformance and I will comment on theses sectors at the time.
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Brooke Thackray is a Research Analyst along wth Don Vialoux for the Horizons AlphaPro Seasonal Rotation ETF that trades under the symbol HAC on the Toronto Stock Exchange. The objective of HAC is long-term capital appreciation in all marketcycles by tactically allocating its exposure amongst equities, ﬁxed income, commodities and currencies during periods that have historically demonstrated seasonal trends. The Thackray Market Letter is for educational purposes and is meant to demonstrate the advantages of seasonal investing by descibing many of the trades and strategies in HAC.