Gold Summer Doldrums / Commodities / Gold & Silver 2024

Gold, silver, and theirminers’ stocks suffer their weakest seasonals of the year in earlysummers.  With traders’ attentionnormally diverted to vacations and summer fun, interest in and demand forprecious metals usually wane.  Withoutoutsized investment demand, gold tends to drift sideways to lower draggingsilver and miners’ stocks with it.  Longfeared as the summer doldrums, they can offer good buying opportunities.

This doldrums term is very apt for gold’straditional summer predicament.  Itdescribes a zone surrounding the equator in the world’s oceans.  There hot air is constantly rising, spawninglong-lived low-pressure areas.  They areoften calm, with little prevailing winds. History is full of accounts of sailing ships getting trapped in thiszone for days or weeks, unable to make headway. The doldrums were murder on ships’ morale.

Crews had no idea whenthe winds would pick up again, while they continued burning through theirlimited stores of food and drink.  Withoutmoving air, the stifling heat and humidity were suffocating on those ships longbefore air conditioning.  Misery andboredom grew extreme, leading to fights breaking out and occasional mutinies.  Being trapped in the doldrums was viewed withdread, it was a very trying experience.

Gold investors cansomewhat relate.  Like clockwork trudgingthrough early summers, gold usually starts driftinglistlessly sideways.  It often can’tmake significant headway no matter what trends looked like heading into June,July, and August.  As the days and weeksgrind on, sentiment deteriorates markedly. Patience is gradually exhausted, supplanted with deep frustration.  So plenty of traders abandon ship,capitulating.

June and early July inparticular have often proven desolate sentiment wastelands for precious metals,devoid of recurring seasonal demand surges. Unlike most of the rest of the year, the summer months simply lack anymajor income-cycle or cultural drivers of outsized gold investment demand.  Yet 2024’s summer setup is unprecedented,with warring bearish and bullish forces to drive gold’s coming price action.

Following its remarkablebreakout surge to streaksof new nominal records, gold has been extremely overbought in recentmonths.  That greatly increases thechances for a rebalancing selloff, which weak summer seasonals couldexacerbate.  Yet gold’s mighty gainshaven’t been fueled by its normal drivers, speculators buying gold futures andAmerican stock investors buying shares in world-dominant gold ETFs.

Instead Chineseinvestors and central banks have been running point on gold’s upleg.  Their strong buying could continue thissummer on momentum-chasing psychology. Sooner or later that could push gold high enough for long enough tostart attracting back its traditional constituency.  Their buying will really amplify gold’s upleg,and their return is almost certainly still coming.  But will it get underway this summer?

Rather than getting discouragedif that tarries, traders should embrace gold’s summer doldrums.  Healthy pullbacks are essential formaximizing uplegs’ longevity and ultimate gains, rebalancing sentiment beforegreed grows excessive enough to prematurely slay uplegs.  These selloffs also offer good mid-uplegbuying opportunities.  So instead ofchecking out in early summers, traders should be researching great stocks.

Quantifying gold’ssummer seasonal tendencies during bull markets requires all relevant years’price action to be recast in perfectly-comparable percentage terms.  That is accomplished by individually indexing each summer’s gold prices to their lastcloses before, which are May’s final trading days.  They are set to 100, then all summergold-price action is recalculated off those common indexed baselines.

So gold trading at anindexed level of 110 simply means it has rallied 10% from May’s final close,while 95 shows it is down 5%.  Thismethodology renders all bull-market-year gold summers in like terms.  That’s necessarysince gold’s price range has been so vast, from $257 in April 2001 to $2,424 inMay 2024.  That span encompassed twosecular gold bulls, the first soaring 638.2% over 10.4 years into August 2011!

Following that mighty juggernaut, goldconsolidated high then started correcting into 2012.  But the yellow metal didn’t enter formal bearterritory down 20%+ until April 2013. That beast mauled gold on and off over several years, so 2013 to 2015are 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 afterthat, where gold avoided relapsing into a new bear despite a seriouscorrection.  Later the yellow metal startedpowering higher again, coming within 0.5% of a new nominal record in earlyMarch 2022 after Russia invaded Ukraine. So 2016 to 2021 definitely proved bull years too, with 2022 reallylooking like one early on.  Then Fedofficials panicked, unleashing market chaos.

Inflation was raging out of control thanksto their extreme money printing.  In just25.5 months following the March 2020 pandemic-lockdown stock panic, the Fedballooned its balance sheet an absurd 115.6%! That effectively more than doubled the US monetary base in just acouple years, injecting $4,807b of new dollars to start chasing and biddingup the prices on goods and services. That fueled an inflationsuper-spike.

With big inflation running rampant, Fedofficials frantically executed the most-extreme tightening cycle in this central bank’s history.  Theyhiked their federal-funds rate an astounding 450 basis points in just 10.6months, while also selling monetized bonds through quantitativetightening!  That ignited a hugeparabolic 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 bullterritory up 20.2% in early February 2023! So I’m also classifying 2022 as a bull year for seasonalityresearch.  Gold’s modern bull yearsinclude 2001 to 2012 and 2016 to 2023.

When all gold’s summerprice action from these modern gold-bull years is individually indexed andthrown into a single chart, this spilled-spaghetti mess is the result.  2001 to 2012 and 2016 to 2022 are rendered inyellow.  Last summer’s action is shown inlight-blue for easier comparison with this summer.  Seeing all this perfectly-comparable indexedsummer price action at once reveals gold’s center-mass-drift tendency.

These summer seasonalsare further refined by averaging together all 20 of these gold-bull years intothe red line.  Finally gold’ssummer-to-date action this year is superimposed over everything else indark-blue, showing how gold is performing compared to its seasonal mean.  Just entering the summer doldrums, the yellowmetal is meandering slightly above trend as of mid-week.  That’s tracking normal doldrums behavior.

After a quarter-centurystudying gold, trading gold stocks, and writing financial newsletters about allof it, I usually have some idea of how a particular summer will play out.  But summer 2024 looks like a coin toss,with similar odds gold pulls back or rallies! So as a few of our newsletter trades have been stopped out with bigrealized gains, we haven’t been redeploying. A summer-doldrums pullback would leave better buys.

But the great majorityof our gold-stock trades in this upleg remain intact, with big-to-hugeunrealized gains.  We tightened theirtrailing stop losses somewhat, but are keeping our trading books as full aspossible in case gold surges again.  Usuallythe early-summer outlook for gold is moderately bearish, but this year it couldgo either way.  Silver and gold stockswill amplify its moves, acting like gold sentiment gauges.

As March dawned, gold’s remarkable breakoutsurge ignited.  A top Fed officialhinted at the possibility of more quantitative-easing money printing, and goldwas off to the races.  From late Februaryto mid-April, gold blasted a powerful 17.7% higher!  Gold closed at nominal record highs onnearly 4/7ths of that short span’s trading days.  But rallying so far so fast left gold extremely overbought,warning of a sizable selloff.

Over the past fivecalendar years, that extremely-overbought threshold has started when gold soarsso fast it stretches over 15% above its baseline 200-day moving average.  At worst in mid-April, gold soared to1.188x its 200dma!  Gold hadn’t beenmore overbought by that metric since August 2020, 3.7 years earlier.  And with gold mostly consolidating high sinceinstead of selling off, that condition has proven chronic.

In mid-May gold blastedright back up to 1.178x its 200dma.  Thelowest Relative Gold reading since mid-April was still very overbought at1.119x, and the average was way up at a nearly-extremely-overbought 1.147x!  Prices surging too far too fast generate somuch popular greed they suck in all available near-term buyers too soon.  That prematurely burns out major uplegs,often heralding correction-grade selloffs.

If that was the wholestory of gold entering summer 2024, I’d be quite bearish on it.  Gold really needs a bigger selloff closer toa 10% correction to bleed off recent months’ excessive greed to rebalance herdsentiment.  So far gold has merelysuffered two 4.0% pullbacks after those mid-April and mid-May peaks.  The weak summer-doldrums seasonals are aperfect backdrop for that necessary selling to intensify.

A large 9% pullbackfrom gold’s last record close would slam it way back to $2,206, leaving thismighty upleg intact.  Interestingly sincegold has already retreated in recent weeks, such a selloff would merely requiregold to fall another 5.2% off May’s final close.  That would leave gold a hair under itssummer-doldrums center-mass-drift trading range of 5% from May’s finalclose, which has $2,211 support.

This sizable-pullbackscenario would be the healthiest for gold’s upleg and gold-stocktraders, serving up a nice mid-upleg buying opportunity.  I’d sure like to see that, as it would set upgold for a major autumn rally.  Butgold’s big Chinese investment demand and central-bank buying marches to thebeats of their own drummers.  I analyzedthat latest fundamental data in depth in our new June newsletter published Saturday.

Gold’s remarkablebreakout again started in early March, the latter third of Q1.  The World Gold Council’s recent Q1’24 GoldDemand Trends report revealed where that buying was ramping up from.  It wasn’t the gold-futures speculators, as duringlast quarter their total shorts fell a tiny 0.9k contracts while their longsmerely grew 7.5k!  Major gold uplegsare normally fueled by stage-one short covering then stage-two long buying.

That eventually drivesgold high enough for long enough to ignite big stage-three investmentbuying.  The combined holdings of themighty American GLD and IAU gold ETFs had long been the best proxy for thatglobally.  Yet they fell 4.7% during Q1, actuallycollapsing to an exceedingly-anomalous 4.5-year secular low in early March!  So American stock investors haven’t startedchasing gold yet, and they could this summer.

Distracted by the AI stock bubble, Americansremain super-apathetic on gold.  The WGCreported that American physical-bar-and-coin demand collapsed 43.3% YoY to just20.7 metric tons in Q1.  Yet that demandfrom Chinese investors skyrocketed 67.0% YoY to 113.5t!  Gold is hot in China, as local stock marketshave been mired in a long-and-deep secular bear while real estate is sufferinga brutal ongoing bust.

So the Chinese couldkeep aggressively buying gold this summer, to protect their capital and chaseits mounting yuan upside.  Central bankscould too, their demand has been massive. Q1’s only grew 1.2% YoY to 289.7t, but that was a Q1 record and the fourth-biggestquarterly buying witnessed going back to at least 2010!  They are prudently diversifying theirUS-dollar-heavy reserves as its value is inflated away.

If those trendscontinue, gold could enjoy a strong summer 2024.  On average during these 20 modern bull years,gold’s summer-doldrums low is actually carved in mid-June.  June is the worst of the summer doldrums, averaging0.3% losses.  But buying picks up againin July and August, which have averaged nice 1.2% and 1.6% gains.  Pulling back or not this summer depends onChinese investors and central banks.

Gold’s price actionoverwhelmingly drives sentiment for the entire precious-metals realm, so both silverand gold stocks are slaved to gold’s fortunes. They also tend to amplify the yellow metal’s price trends, so they sufferworse summer doldrums than gold. Starting with silver then moving on to gold stocks, we’ll use this samesummer-seasonal-indexing methodology. The white metal’s volatility well exceeds the yellow’s.

Silver’ssummer-doldrums center-mass drift is double gold’s at 10% from May’s finalclose.  Silver’s average seasonal lowcomes later towards the end of June, at a 3.5% loss compared to gold’s mere 0.8%one.  In June, July, and August duringthese modern gold-bull years, silver has averaged moves of -2.8%, +5.1%, and+0.4%.  So seasonals favor a biggersilver selloff followed by a sharp mid-summer rebound.

But overall silver’soutlook this summer is more bearish than gold’s.  Central banks don’t hoard silver, and Ihaven’t seen anecdotal reports of big Chinese investment demand.  That could be happening, but silver is nowherenear as popular as gold judging from the stream of financial-media stories fromChina.  Like gold, silver also rocketedto extremely-overbought levels in mid-May stretched 32.6% above its own 200dma!

So silver is overduefor a sentiment-rebalancing selloff too, and the weak summer seasonals are alsoa perfect time for one.  Silver-futuresbuying also looks exhausted, quite different from gold futures.  In late May as silver soared to a lofty 11.3-yearsecular high near $32, specs’ silver-futures longs shot up to an amazing 4.2-yearhigh.  Yet spec gold-futures longs onlyhit their own 2.1-year high, nowhere near as stretched.

So there’s lots moreroom for sizable-to-big near-term selling in silver futures than goldfutures.  In both metals hyper-leveragedfutures trading is totally divorced from fundamentals, nearly allultra-short-term-momentum driven.  Ifsilver-futures speculators are getting tapped out, silver will likely sell offharder than gold if it pulls back this summer or not outperform gold as much ifit rallies.  Silver futures need to meanrevert.

The gold miners’ stocksremain the biggest beneficiaries of gold strength, which their earnings andstock prices amplify to big gains.  Forgold-stock summer seasonals, I’m using the older HUI gold-stock index which closelymirrors the GDX VanEck GoldMiners ETF more popular today. Unfortunately GDX’s price history is insufficient to span these moderngold-bull years, as this leading sector ETF wasn’t born until May 2006.

Unlike silver, goldstocks ought to well outperform their metal this summer.  GDX has been overbought in recent months,surging as high as 1.253x its 200dma. But that remained well below gold stocks’ extreme-overboughtnessthreshold which doesn’t start until 35% over. And probably because that AI stock bubble is stealing most of the marketlimelight, gold stocks have really underperformed gold during its mighty upleg.

At best from earlyOctober to mid-May, gold has powered 33.2% higher!  This upleg is nearing monster status at 40%+gains.  Typically the major gold stocksof GDX amplify material gold moves by 2x to 3x. Yet during this same gold-upleg span, GDX has only climbed 43.8% at bestmaking for poor 1.3x upside leverage. It should be up 66% to 100% by now! Thankfully gold stocks are starting to outperform again recently.

My entire essay lastweek on gold stocks catchingup laid out the case for that.  Asgold powered higher in April and May, traders took notice and gold-stockbuying really accelerated.  Goldstocks still have a lot of catch-up rallying left to do, and remain veryundervalued relative to prevailing gold prices. So they don’t need to fully leverage any summer-doldrums gold pullback,and should increasingly amplify gold rallying.

The gold miners’upcoming Q2 earnings season should really boost gold-stock interest, as it is trackingto prove their best ever by far. Quarter-to-date gold has averaged a stunning record $2,342, which shouldmake for the fattest mining earnings ever witnessed!  Those Q2 results will be reported frommid-July to mid-August.  Epic gold-stockprofits ought to attract plenty of institutional investors and their bigcapital pools.

How gold stocks farethis summer depends on gold like usual, but they should outperform eitherway.  Gold’s fortunes again look to be inthe hands of Chinese investors and central banks, although missing-in-actionAmerican investors could start returning. So June’s peak-summer-doldrums action could go either way this year,which is exciting.  But I’d still like tosee a healthy pullback leading to a gold-stock buying opportunity.

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The bottom line is gold is entering 2024’s summer doldrums, itsweakest time of the year seasonally. Most of that slump is compressed into June, with gold recovering in Julyand August.  Both silver and gold stocksusually trade like gold sentiment gauges, mirroring and amplifying gold’ssummer seasonals.  After being extremelyoverbought in recent months, gold sure could use a healthy pullback torebalance sentiment.

But we might not get one this year, gold also has good odds ofsurging further.  Chinese investors andcentral banks have seized gold’s reins, usurping gold-futures speculators andAmerican stock investors in recent months. The former group may very well continue buying and chasing gold’s strongupside momentum, while the latter group might start returning.  So rather unusually, gold could move eitherway this summer.

Adam Hamilton, CPA

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