Figuring out when to invest in gold stocks can be a pretty tricky proposition. Especially when they are in a relentless bear market. But figuring out when NOT to be in gold stocks may not be quite so tough.
For as it turns out there are some fairly consistent “unfavorable periods” for gold stocks on an annual basis.
Four Annual “Unfavorable Periods”
There are four times of year when gold stocks generally perform poorly – often even in a bull market. They are:
*February Trading Day #14 through May Trading Day #1
*May Trading Day #15 through June Trading Day #9
*July Trading Day #1 through July Trading Day #19
*September Trading Day #21 through October Trading Day #19
What You Miss by Being Out of Gold Stocks During These Periods
Figure 1 displays the growth (OK, as it turns out “growth” may be a poor choice of words) of $1,000 invested in Fidelity Select Gold Sector fund (ticker FSAGX) only during the periods listed above starting on 12/31/1988 through August 14, 2015.
Figure 1 – Growth of $1,000 invested in FSAGX only during four “Unfavorable Periods” each year (12/31/1988-8/14/2015)
Let me sum up the results displayed in Figure 1 in a word – OUCH!!
Figure 2 displays the results on a calendar year basis. Column 2 displays the annual performance of gold stocks during all periods not listed above – i.e., essentially the “Non unfavorable periods”. Column 3 displays the performance of gold stocks during all four periods listed above on an annual basis.
Figure 2 – Annual Results for “Non Unfavorable” and “Unfavorable” Periods
* – Annual Average calculated through 12/31/2014
For the record, note the annual results displayed in Figure 3: 
Figure 3 – Annualized Results
Now before anyone gets too excited please note that an investors holding FSAGX only during the “Non unfavorable periods” would have witnessed a loss of -28.8% in 2011 and a whopping hit of -50.4% in 2013. So do not get the idea that “Non unfavorable” is the same as “Bullish.”
Remember that the real focus of this article is the “Unfavorable Periods” during which gold stocks lost about -98% over the course of 26 years – which kind of takes some doing.
Summary
Bad things can (and have) happened to gold stocks during “Non unfavorable periods”. On the other hand, good things rarely ever happen to gold stocks during the “Unfavorable Periods” I listed earlier.
The bottom line:
*Do not assume that gold stocks will perform well when the calendar is not in one of the four unfavorable periods listed earlier.
*Do not expect gold stocks to perform well at all when the calendar is within one of the four unfavorable periods listed earlier.
In sum, the difference between:
*a gain of +4,584% (during all non unfavorable periods) and
*a loss of -97.9% (during all unfavorable periods)
…is what we “quantitative analyst types” refer to as “statistically significant.”
FYI: The next “Unfavorable period” for gold stocks begins at the close on 9/30/2015 and extends through the close on 10/27/2015.
Jay Kaeppel
In general how do you go about identifying favorable or unfavorable periods like this? Is it simply trying all possible combinations over a certain number of years in software? (You may have already covered this. If so, please provide the article link.)
Thanks,
Kevin
Kevin, I basically wrote my own code a long time ago. In a nutshell, I look at how a security performs on average for a given day (i.e., January Trading Day #1, January Trading Day #2, etc.) then string those daily averages together and run a cumulative total over the course of a year. Initially I did a lot of 10-year tests and then used roughly 5 years out-of-sample ending in December 2003. Alot of commodities and sectors hold up very well over time. Some individual stocks have a few interesting tendencies also (KO, AAPL and GM are I few I have written about previously). Hope that helps. Jay