The precious metals markets, like the stock markets, fluctuate daily. It can be hard to figure out when to buy (or to sell).
Gold has seen some peaks and dips over the last few weeks and that volatility might be preventing you from buying, leaving you wondering “is now a good time to buy gold?”
How many times have you bought something only to find that the price dropped right after you bought it? It may be a laptop, a cellphone or a stock. We expect it with some things. You know that if you buy a brand new car that it’s value drops as soon as you drive it off the lot.
Maybe you haven’t pulled the trigger on buying gold because you, or someone you know, has bought an asset like real estate, stocks or precious metals in the expectation that its price will rise in the short term only to find it does the complete opposite.
It shakes your confidence leaving you hesitant to pull the trigger again (or for the first time).
Everyone hopes that they can buy into something when the market is at its lowest price and sell when at its highest. But no one has a crystal ball and informed analysts can only spot trends and guesstimate the best times to buy or sell.
If you give up the idea that you’ll buy at the absolute low or sell at the absolute high, then there are good times to buy, especially where gold is concerned.
The Summer Season
We all know that summer tends to be a bit of a dead period and it’s typically a weak period for investments.
People are going on vacation, active employee numbers are down, people in general are more focused on enjoying the weather and having fun. There’s an old investments adage which says: “sell in May and go away.”
There’s been a general movement of gold and silver from the West to the East in recent years so an upsurge or downturn in precious metals trading in the East has a significant effect in the West.
Gold-buying festivals in India and Asia don’t kick off until the Fall so demand for precious metals is lower in the summer months.
The slowdown in summer tends to lead to lower gold and silver prices.
Prices are probably going to bounce around where they currently are for the next few weeks unless there’s a significant event that spooks people.
Brexit could be one such event. The vote on whether the UK should stay in the EU or not is happening today, so keep an eye on the precious metals prices as the result is announced later today.
While prices may bounce around by a couple of percent, in general the market is pretty stable at this time of year. Here’s what the data tells us:
The data was collated and plotted by Jeff Clark over at GoldSilver.com and shows the average monthly performance for gold since 1975 (when it became legal to own again).
The chart shows that March and April are typically when the gold price is at its lowest, so are good months to buy. After that, the only other months where the price moves downward are June and July. This historical data also shows that buying before August comes round is a good idea.
There are caveats to this indicator. These are historical trends and not absolutes. It turns out that the price of gold only follows these seasonal trends about 60-70% of the time. The rest of the time, the price moves completely in the opposite direction. That has happened this year with gold being up $3 in March and $48 in April whereas it fell $73 in May.
In order to see if there was a better way to assess seasonal patterns in gold, Clark looked at the context of the market—bull, bear, and flat…
June and July generally see a drop in the price of gold but the bull market in the 1970s certainly bucked the trend.
Look closely and you’ll see that August is the only month where the price always moved in the same direction – up. Just to be clear, this doesn’t mean that the gold price has risen every August over the last 40 years, it means that the average price during each of the 4 charted periods was up.
While this is insightful data, there are still lots of exceptions and it’s a less than perfect indicator of when to lay down your money and buy. To get a better idea of when to buy, Clark took a broader view and looked at gold returns on a quarterly basis:
The chart shows the average quarterly changes in the price of gold (as a percentage) since 1975. And it’s easy to see that gold’s weakest price movements happen in Q2 (Apr – Jun). The strongest movement in price (upwards) has been in Q3 (Jul – Sep).
The upshot is that you want to buy gold April through June before the price starts to rise during the July to September period.
It’s not about buying at the best possible price but it is about buying at a time before Q3 when history suggests you will get you more gold for your dollar.
Another Reason Summer Should Bring A Smile To Your Face
To close, Clark also compiled a list showing the dates and prices of gold over the last 15 years when at it’s lowest in Q2 and highest in Q3. Also listed are the gains in value in each year. Only one gain was less than 10% whereas the largest was 33.5%. Bear in mind that this 15 year period covers both a strong bull market (2001-2012) and a devastating bear market (2013-2015).
In every case, gold gave a positive return, and a very good one at that!
Most people don’t buy gold to do day-trading or to play the markets. They buy for the long-haul. But, odds are that if you buy during a dip in the price (as is happening today in fact), you’ll reap the rewards in a few short weeks.
As I mentioned earlier, the UK is voting today on whether to stay in or leave the EU. Whatever the outcome, it’s likely to affect the price of gold. Expect to see a drop in price if they vote to stay and the price to rise if the UK decides to leave.
2016 is an unusual year. The Brexit outcome will determine the UK’s fate and will have an impact on the EU whatever the outcome.
The US Presidential election is only 5 months away with two candidates who elicit strong reactions among the electorate. That outcome will likely have an impact on the global economy.
And, on the horizon, is the major financial crash predicted by commentators and analysts.
“May you live in interesting times” is an ancient Chinese curse. It seems to apply to us today.
Final Thoughts
No one knows how 2016 will play out and how the US and global economies will be affected by unfolding events. It’s the “unknown unknowns” as Donald Rumsfeld called them, those Black Swan events, those unanticipated events that come from left-field that pose the greatest risk to the system.
Owning gold puts your money outside of the banking system. So if there’s a collapse, you at least have some protection. Gold is also a store of wealth so if the dollar plunges, your gold will maintain its purchasing power.
Gold is an asset that has withstood every monetary crisis that has afflicted Mankind over the last 5,000 years. Having some in your portfolio provides security against the economic and monetary crises that our leaders and bankers have inflicted upon us.
And history says that right now is a good time to buy.
