Figure 1 displays the action in gold stocks (using ETF ticker GDX as a proxy) since late 2007. Here is one possible interpretation- gold stocks:
1. Plunged -81% from 2011 into the January 2016 low
2. Rallied 156% into August 2016
3. Retraced 68.1% of that rally into December 2016
4. Since then have been “coiling” into an ever tighter range
Figure 1 – Ticker GDX
This may lead some traders to conclude that gold stocks are due for a breakout in the not too distant future. Could this happen? Of course. Could it happen in the month of October? Abolutely.
But is that the way to bet?
Gold Stocks and the Month of October
For testing purposes we will use monthly total return data for ticker FSAAGX (Fidelity Select Gold) sector fund since it started trading in 1986. Figure 2 displays the monthly total return for ticker FSAGX during each month of October since 1986.
| Year | FSAGX % |
| 1986 | (1.4) |
| 1987 | (29.2) |
| 1988 | 1.0 |
| 1989 | 1.0 |
| 1990 | (16.4) |
| 1991 | 7.7 |
| 1992 | (3.0) |
| 1993 | 14.9 |
| 1994 | (7.2) |
| 1995 | (12.1) |
| 1996 | (2.7) |
| 1997 | (15.3) |
| 1998 | (3.0) |
| 1999 | (8.4) |
| 2000 | (11.0) |
| 2001 | (1.9) |
| 2002 | (10.5) |
| 2003 | 9.6 |
| 2004 | 2.6 |
| 2005 | (5.7) |
| 2006 | 3.7 |
| 2007 | 12.1 |
| 2008 | (35.3) |
| 2009 | (4.4) |
| 2010 | 1.9 |
| 2011 | 6.7 |
| 2012 | (3.1) |
| 2013 | (0.7) |
| 2014 | (17.9) |
| 2015 | 7.6 |
| 2016 | (7.3) |
Figure 2 – FSAGX total return during the month of October
Figure 3 displays the growth (er, decline) of $1,000 invested in ticker FSAGX ONLY during the month of October. In sum an initial $1,000 declined by -78% to just $218.
Figure 3 – Growth of $1,000 invested in FSAGX ONLY during October (1986-2016)
But no one should take this to mean that gold stock cannot advance during October. To wit:
*FSAGX has risen 11 times (35% of the time)
*FSAGX has declined 20 times (65% of the time)
*The average UP month was +6.3%
*The average DOWN month was -9.8%
*The maximum October gain was +14.9% in 1993
*The maximum October loss was -35.3% in 2008
*October has registered a gain of +10% or more twice
*October has registered a loss of -10% or more eight times
Summary
So how will gold stocks perform during October 2017? Well, so far so good. After a sharp decline between the first week of September and the end of the month gold stocks have “bounced” higher during early October.
A fair number of usually reliable seasonal trends in a variety of areas have not panned out according to their usual tendencies in 2017 so there is certainly no guarantee that the overall bearish trend during October will play out in gold stocks. In fact, as we saw in 1993, 2003 and 2007,there is no reason gold stocks cannot rally quite sharply just because the calendar reads “October.” Given the setup described in Figure 1 above gold stocks could breakout strongly to the upside at anytime.
But history suggests that that is not the way to bet.
Jay Kaeppel
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
