• 12 hours Hedge Funds Having A Banner Year
  • 15 hours Disney Heiress Asks “Is There Such A Thing As Too Much?”
  • 18 hours BHP Turns Bullish On EVs
  • 20 hours Investors Turn Bullish On America’s Nuclear Decommissioning Business
  • 2 days The $90M Inflatable Rabbit Redefining Modern Art
  • 2 days Huawei’s Fate In The Air
  • 2 days Tesla Slashes Prices Again
  • 2 days The Modern History Of Financial Entropy
  • 3 days Italy’s Central Bank Embraces Sustainable Investing
  • 3 days Trump Lifts Metals Tariffs To Cool Simmering Trade War
  • 3 days Researchers Push To Limit Space Mining
  • 3 days Could China Start Dumping U.S. Treasury Bonds?
  • 4 days Is Winter Coming For HBO?
  • 4 days Rise Of EVs Signals Peak Gasoline
  • 5 days Jeff Bezos Doubles Down On Space Colonization Ambitions
  • 5 days Gold Mining Stocks Stuck In Limbo
  • 6 days Executive Order Targets Huawei Over Espionage
  • 6 days Why Now May Be The Best Time Ever To Hold Gold
  • 7 days Fake News Sinks Shares In UK-Based Bank
  • 7 days De Beers To Build $468 Million Diamond Recovery Ship
Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

  1. Home
  2. Markets
  3. Other

Proper Seasonal Gold Chart

In an excellent (and free!) daily email I receive, the Daily Shot, I ran across a chart that touched off my quant BS alert.

Gold Seasonal 30-Years

This chart is from here, and is obviously a few years out-of-date, but that isn't the problem. The problem is that the chart suggests that gold prices rise 5.5% every year. If you buy gold in January, at an index value of 100, and hold it through the flat part of January-June, then you reap the 5% rally in the second half of the year.

No wonder people love gold! You can get a 10% annual return simply by buying in July and selling in December!

The problem is that this is not the way you should do a seasonal chart. It has not be detrended. We detrend data because that way, we can express the expected return for any given day as (the normal expected return) plus (the seasonal component). This is valuable because, as analysts, we might have a general forecast for gold but we will want to adjust that forecast to a holding period return based on a seasonal pattern. This is very important, for example, with TIPS yields and breakevens, because inflation itself is highly seasonal.

Now, the seasonal chart done correctly still suggests that the best time to own gold is in the second half of the year, but it no longer suggests that owning gold is an automatic winner. (It is a separate argument whether we can reject the null hypothesis of zero seasonality altogether, but that's not my point here).

Gold Seasonality Chart March 1982-March 2012

If I was doing this chart, I would also include only full calendar years, so if I move the start date back to January 1, 1982 and the end date to December 31, 2014 here is what I get:

Gold Seasonality Chart January 1982-December 2014

Frankly, I would also use real prices rather than nominal prices, since it is much easier to make a statement about the expected real return to gold (roughly zero over time, although it may be more or less than that based on current valuation metrics) than it is to make a statement about the expected nominal return to gold, since the latter includes an embedded assumption about the inflation rate, which I would prefer to strip out. And I would also include data from the 1970s.

 


**Note - If you would like to be on the notification list for my new book, What's Wrong with Money?: The Biggest Bubble of All - and How to Invest with it in Mind to receive an email when the book is published, simply send an email to WWWM@enduringinvestments.com and I will put you on the list!

You can follow me @inflation_guy!

Enduring Investments is a registered investment adviser that specializes in solving inflation-related problems. Fill out the contact form at http://www.EnduringInvestments.com/contact and we will send you our latest Quarterly Inflation Outlook. And if you make sure to put your physical mailing address in the "comment" section of the contact form, we will also send you a copy of Michael Ashton's book "Maestro, My Ass!"

 

Back to homepage

Leave a comment

Leave a comment