Gold Summer Doldrums ‘24

Gold, silver, and their miners’ stocks suffer their weakest seasonals of the year in early summers.  With traders’ attention normally diverted to vacations and summer fun, interest in and demand for precious metals usually wane.  Without outsized investment demand, gold tends to drift sideways to lower dragging silver and miners’ stocks with it.  Long feared as the summer doldrums, they can offer good buying opportunities.

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

Crews had no idea when the winds would pick up again, while they continued burning through their limited stores of food and drink.  Without moving air, the stifling heat and humidity were suffocating on those ships long before air conditioning.  Misery and boredom grew extreme, leading to fights breaking out and occasional mutinies.  Being trapped in the doldrums was viewed with dread, it was a very trying experience.

Gold investors can somewhat relate.  Like clockwork trudging through early summers, gold usually starts drifting listlessly sideways.  It often can’t make significant headway no matter what trends looked like heading into June, July, and August.  As the days and weeks grind on, sentiment deteriorates markedly.  Patience is gradually exhausted, supplanted with deep frustration.  So plenty of traders abandon ship, capitulating.

June and early July in particular 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 any major 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 remarkable breakout surge to streaks of new nominal records, gold has been extremely overbought in recent months.  That greatly increases the chances for a rebalancing selloff, which weak summer seasonals could exacerbate.  Yet gold’s mighty gains haven’t been fueled by its normal drivers, speculators buying gold futures and American stock investors buying shares in world-dominant gold ETFs.

Instead Chinese investors and central banks have been running point on gold’s upleg.  Their strong buying could continue this summer on momentum-chasing psychology.  Sooner or later that could push gold high enough for long enough to start 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 discouraged if that tarries, traders should embrace gold’s summer doldrums.  Healthy pullbacks are essential for maximizing uplegs’ longevity and ultimate gains, rebalancing sentiment before greed grows excessive enough to prematurely slay uplegs.  These selloffs also offer good mid-upleg buying opportunities.  So instead of checking out in early summers, traders should be researching great stocks.

Quantifying gold’s summer 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 last closes before, which are May’s final trading days.  They are set to 100, then all summer gold-price action is recalculated off those common indexed baselines.

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

Following that mighty 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.

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

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

After a quarter-century studying gold, trading gold stocks, and writing financial newsletters about all of 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 big realized gains, we haven’t been redeploying.  A summer-doldrums pullback would leave better buys.

But the great majority of our gold-stock trades in this upleg remain intact, with big-to-huge unrealized gains.  We tightened their trailing stop losses somewhat, but are keeping our trading books as full as possible in case gold surges again.  Usually the early-summer outlook for gold is moderately bearish, but this year it could go either way.  Silver and gold stocks will amplify its moves, acting like gold sentiment gauges.

As March dawned, gold’s remarkable breakout surge ignited.  A top Fed official hinted at the possibility of more quantitative-easing money printing, and gold was off to the races.  From late February to mid-April, gold blasted a powerful 17.7% higher!  Gold closed at nominal record highs on nearly 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 five calendar years, that extremely-overbought threshold has started when gold soars so fast it stretches over 15% above its baseline 200-day moving average.  At worst in mid-April, gold soared to 1.188x its 200dma!  Gold hadn’t been more overbought by that metric since August 2020, 3.7 years earlier.  And with gold mostly consolidating high since instead of selling off, that condition has proven chronic.

In mid-May gold blasted right back up to 1.178x its 200dma.  The lowest Relative Gold reading since mid-April was still very overbought at 1.119x, and the average was way up at a nearly-extremely-overbought 1.147x!  Prices surging too far too fast generate so much 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 whole story of gold entering summer 2024, I’d be quite bearish on it.  Gold really needs a bigger selloff closer to a 10% correction to bleed off recent months’ excessive greed to rebalance herd sentiment.  So far gold has merely suffered two 4.0% pullbacks after those mid-April and mid-May peaks.  The weak summer-doldrums seasonals are a perfect backdrop for that necessary selling to intensify.

A large 9% pullback from gold’s last record close would slam it way back to $2,206, leaving this mighty upleg intact.  Interestingly since gold has already retreated in recent weeks, such a selloff would merely require gold to fall another 5.2% off May’s final close.  That would leave gold a hair under its summer-doldrums center-mass-drift trading range of +/-5% from May’s final close, which has $2,211 support.

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

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

That eventually drives gold high enough for long enough to ignite big stage-three investment buying.  The combined holdings of the mighty American GLD and IAU gold ETFs had long been the best proxy for that globally.  Yet they fell 4.7% during Q1, actually collapsing to an exceedingly-anomalous 4.5-year secular low in early March!  So American stock investors haven’t started chasing gold yet, and they could this summer.

Distracted by the AI stock bubble, Americans remain super-apathetic on gold.  The WGC reported that American physical-bar-and-coin demand collapsed 43.3% YoY to just 20.7 metric tons in Q1.  Yet that demand from Chinese investors skyrocketed 67.0% YoY to 113.5t!  Gold is hot in China, as local stock markets have been mired in a long-and-deep secular bear while real estate is suffering a brutal ongoing bust.

So the Chinese could keep aggressively buying gold this summer, to protect their capital and chase its mounting yuan upside.  Central banks could 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-biggest quarterly buying witnessed going back to at least 2010!  They are prudently diversifying their US-dollar-heavy reserves as its value is inflated away.

If those trends continue, 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, averaging 0.3% losses.  But buying picks up again in July and August, which have averaged nice 1.2% and 1.6% gains.  Pulling back or not this summer depends on Chinese investors and central banks.

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

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

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

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

So there’s lots more room for sizable-to-big near-term selling in silver futures than gold futures.  In both metals hyper-leveraged futures trading is totally divorced from fundamentals, nearly all ultra-short-term-momentum driven.  If silver-futures speculators are getting tapped out, silver will likely sell off harder than gold if it pulls back this summer or not outperform gold as much if it rallies.  Silver futures need to mean revert.

The gold miners’ stocks remain the biggest beneficiaries of gold strength, which their earnings and stock prices amplify to big gains.  For gold-stock summer seasonals, I’m using the older HUI gold-stock index which closely mirrors the GDX VanEck Gold Miners ETF more popular today.  Unfortunately GDX’s price history is insufficient to span these modern gold-bull years, as this leading sector ETF wasn’t born until May 2006.

Unlike silver, gold stocks 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-overboughtness threshold which doesn’t start until 35% over.  And probably because that AI stock bubble is stealing most of the market limelight, gold stocks have really underperformed gold during its mighty upleg.

At best from early October to mid-May, gold has powered 33.2% higher!  This upleg is nearing monster status at 40%+ gains.  Typically the major gold stocks of GDX amplify material gold moves by 2x to 3x.  Yet during this same gold-upleg span, GDX has only climbed 43.8% at best making 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 last week on gold stocks catching up laid out the case for that.  As gold powered higher in April and May, traders took notice and gold-stock buying really accelerated.  Gold stocks still have a lot of catch-up rallying left to do, and remain very undervalued 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 tracking to prove their best ever by far.  Quarter-to-date gold has averaged a stunning record $2,342, which should make for the fattest mining earnings ever witnessed!  Those Q2 results will be reported from mid-July to mid-August.  Epic gold-stock profits ought to attract plenty of institutional investors and their big capital pools.

How gold stocks fare this summer depends on gold like usual, but they should outperform either way.  Gold’s fortunes again look to be in the hands of Chinese investors and central banks, although missing-in-action American 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 to see 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, its weakest time of the year seasonally.  Most of that slump is compressed into June, with gold recovering in July and August.  Both silver and gold stocks usually trade like gold sentiment gauges, mirroring and amplifying gold’s summer seasonals.  After being extremely overbought in recent months, gold sure could use a healthy pullback to rebalance sentiment.

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

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