2 precious metal ETFs to trade: 1st is gold, 2nd is silver

Seasonal financial analyst Don Vialoux says precious metals and their mining stocks generally reach a seasonal low in July and pick up speed again until late September. Cyclical stocks usually hit seasonal lows in October, which makes them a good place to invest after cashing out of short-term trades on precious metals.

Whatever is responsible, according to seasonal investing website equityclock.com, in years ending in 7, markets take a huge fall from around mid-August until the end of October.

Longtime seasonal financial analyst Don Vialoux prefers science to superstition when divining the direction of the markets, but he nevertheless highlights an intriguing link between astrology and stock analysis: the last time both a lunar and solar eclipse occurred in August was in 2001, which was followed by Sept. 11.

"I'm not terribly bullish on equity markets right now," said Mr. Vialoux in an Aug. 7 interview. "All of these things fit nicely with my predictions for the next couple of months." He, along with his fellow analyst and son, Jon, run Canadian seasonality-focused investing websites equityclock.com and timingthemarket.ca.

They also maintain a stocktwits.com account where they post alerts for stocks that are breaking out and the like to more than 40,000 followers.

Checking in with the elder Mr. Vialoux last spring, he noted that between May and October, an unexpected event has prompted stock market volatility every year for the last two decades, such as the Brexit vote in 2016 and Chinese stock correction of 2015.

Historically, August and September are the weakest months for equity markets, the analyst adds.

Although the unexpected event had yet to pass (as of press time) in 2017, he observed in his recent interview with the Digest that market trends are moving toward retreat.

"We actually haven't seen a spike in volatility as yet. It's about to happen."

Mr. Vialoux says: "A lot of the leading sectors, the bank stocks in particular . . . are starting to show signs of rolling over. Most sectors are starting to show flat to lower momentum, shall we say."

"The question is, what could cause the volatility going forward?"

According to the analyst, the seasonal peak seemed to arrive on July 19 this year. Since then, markets in Canada and the United States have slackened.

The S&P 500, NASDAQ Composite, Russell 2000, and TSX Composite have all recorded at least a small loss since July 19, said the analyst. The Dow Jones Transportation Average lost about five per cent in the three weeks following that date, probably the weakest performance among the major indexes. The Dow Jones Industrial Average is the only major index that had not yet suffered a loss.

When in doubt, go for the gold!

Still, Mr. Vialoux adds: "As usual, there are some exceptions." Mr. Vialoux explains that as volatility increases, investors pick up gold bullion, stocks, or ETFs and prices of gold-related assets rise accordingly.

He says precious metals and their related mining stocks generally reach a seasonal low around the third week of July. They then pick up speed again until those gains fall back in late September.

"At that point, there's a big switch into the economically sensitive sectors," says the analyst. Cyclical stocks usually hit seasonal lows in October, and then make their most impressive gains into the first week of January, which makes them a good place to invest after cashing out of short-term trades on precious metals.

Since late July, gold has performed well, outpacing the S&P/TSX Composite Index. According to the analyst, "a lot of it has to do with the extra buying of gold prior to the Diwali wedding season in India (in October)," because jewellery makers are buying raw materials. In the case of gold, he recommends that investors pick up shares of his first 'best buy', the iShares S&P/TSX Global Gold Index ETF (TSX-XGD).

True to its name, the exchange-traded fund is based on a global basket of gold stocks, including major Canadian gold mining stocks Barrick Gold (TSX-ABX), and Franco-Nevada (TSX-FNV).

"It's basically just the large gold producers in the world."

Although silver is not gathering momentum as quickly as gold, it is also doing well, says Mr. Vialoux. For access to major silver miners worldwide, he recommends the Global X Silver Miners ETF (NYSEARCA-SIL) as his second 'best buy'.

Asked to recommend one specific type of precious metals investment over another, the analyst replied that usually equities exceed bullion, but at the moment, "it's pretty much a wash."

This is an edited version of an article that was originally published for subscribers in the August 25, 2017, issue of Investor's Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor's Digest of Canada.

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