Gold Miners ETF (GDX)

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Gold Stocks’ Spring Rally ‘24
By: Adam Hamilton | March 29, 2024

With gold forging deeper into record territory, interest in gold stocks is mounting. They’ve started to mean revert higher, on the way to catch up with and surpass the surging metal their profits leverage. The timing of this gold-stock upleg is fortuitous, coinciding with spring-rally seasonals. They’ll generate a strong tailwind on top of this sector’s primary drivers of battered sentiment, oversold technicals, and fantastic fundamentals.

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 behaviors 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 stocks display strong seasonality because their price action amplifies that of their dominant primary driver, gold. Gold’s seasonality generally isn’t driven by supply fluctuations like grown commodities see, as its mined supply remains relatively steady year-round. Instead gold’s major seasonality is demand-driven, with global investment demand varying considerably depending on the time in the calendar year.

This gold seasonality is fueled by well-known income-cycle and cultural drivers of outsized gold demand from around the world. Like clockwork these power major autumn, winter, and spring seasonal rallies in gold and thus its miners’ stocks. Interestingly market forces behind the latter are the least-understood out of all gold’s seasonal surges. Maybe that’s why this imminent spring rally has also proven gold’s weakest.

Yet surprisingly gold stocks still enjoy their best seasonal outperformance relative to their metal during these same coming months! So gold stocks’ spring rally has proven their strongest seasonal one during gold’s modern bull-market years. This contradictory mismatch between gold’s worst seasonal rally and its miners’ best one offers an important clue on the spring rally’s motivating impetus, sentiment is likely the key.

Traders’ psychology exceedingly influences their capital-allocation decisions. They won’t buy gold or gold stocks or anything unless they are optimistic prices will climb on balance. After dark cold winters in the northern hemisphere where the vast majority of the world’s traders live, spring naturally breeds optimism. Its glorious swelling sunshine and warming temperatures universally buoy the spirits of nearly everyone.

The lengthening daylight hours and improving weather from March to May bring joyful anticipation of the summer vacation season. That’s such a wonderful contrast to January and February, which often seem like nose-to-the-grindstone months of relentless busyness. With things looking up and traders generally feeling happier during springs, their optimism makes them more bullish on much including gold and gold stocks.

This glass-half-full sentiment leaves traders more willing to deploy capital to chase expected gains. And their optimistic buying feeds on itself, fueling virtuous circles of strength. The more traders buy gold and its miners’ stocks, the more they rally. Those resulting gains attract in still-more traders, accelerating the upside. Spring is exceptionally favorable for nurturing this positive psychological feedback loop in markets.

Since it is gold’s own demand-driven seasonality that fuels gold stocks’ seasonality, that’s logically the best place to start to understand what’s likely coming. This old research thread focuses on modern bull-market seasonality, as bull and bear price action are quite different. Gold enjoyed a mighty 638.2% bull run from April 2001 to August 2011, fueling gold stocks skyrocketing 1,664.4% per their leading HUI index then!

Following that secular juggernaut, gold consolidated high then started correcting into 2012. But the yellow metal didn’t enter formal bear territory down 20%+ until April 2013. That beast mauled gold on and off over several years, so 2013 to 2015 are excluded from these seasonal averages. Gold finally regained bull status powering 20%+ higher in March 2016, then its modest gains grew to 96.2% by August 2020.

Another high consolidation emerged after that, where gold avoided relapsing into a new bear despite a serious correction. Later the yellow metal started powering higher again, coming within 0.5% of a new nominal record in early March 2022 after Russia invaded Ukraine. So 2016 to 2021 definitely proved bull years too, with 2022 really looking like one early on. Then Fed officials panicked, unleashing market chaos.

Inflation was raging out of control thanks to their extreme money printing. In just 25.5 months following the March 2020 pandemic-lockdown stock panic, the Fed ballooned its balance sheet an absurd 115.6%! That effectively more than doubled the US monetary base in just a couple years, injecting $4,807b of new dollars to start chasing and bidding up the prices on goods and services. That fueled an inflation super-spike.

With big inflation running rampant, Fed officials frantically executed the most-extreme tightening cycle in this central bank’s history. They hiked their federal-funds rate an astounding 450 basis points in just 10.6 months, while also selling monetized bonds through quantitative tightening! That ignited a huge parabolic spike in the US dollar, unleashing massive gold-futures selling slamming gold 20.9% lower into early September.

That was technically a new bear market, albeit barely and driven by an extraordinary anomaly that was unsustainable. Indeed gold soon rebounded sharply, exiting 2022 with a trivial 0.3% full-year loss. Gold kept on powering higher, reentering bull territory up 20.2% in early February 2023! So I’m also classifying 2022 as a bull year for seasonality research. Gold’s modern bull years include 2001 to 2012 and 2016 to 2023.

Prevailing gold prices varied radically across these secular spans, running just $257 when gold’s mighty 2000s bull was born to March 2024’s latest record high of $2,194. That vast range of gold levels spread over all those long years has to first be rendered in like-percentage terms in order to make them perfectly comparable with each other. Then they can be averaged together to distill out gold’s bull-market seasonality.

That’s accomplished by individually indexing each calendar year’s gold price action to its final close of the preceding year, which is recast at 100. Then all gold price action of the following year is calculated off that common indexed baseline, normalizing all years. So gold trading at 110 simply means it has rallied 10% off the prior year’s close. Gold’s previous seasonality before 2023 was added is shown in light blue.



If investors understood gold’s phenomenal performance in recent decades, it would be far more popular with allocations included in every portfolio. Through 20 of these last 23 years, gold has enjoyed fantastic average calendar-year gains of 13.7%! And the great majority of that was before the Fed recklessly more than doubled the US money supply. With inflation raging since, everyone should have 5% to 10% in gold.

Seasonally gold enjoys three distinct rallies occurring in autumn, winter, and spring. Their average gains from 2001 to 2012 and 2016 to 2023 clocked in at 4.8%, 8.4%, and 3.5%. Gold’s spring rallies tend to start in mid-March near its seasonal uptrend’s lower support. But gold got an early start this year after a mild pullback into mid-February. At worst gold merely slumped 4.2% on a parallel 3.9% US Dollar Index surge...

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