Seasonal trends don’t always repeat, but when paired with other indicators, seasonality can be a potent tool for traders.
With that in mind, the Sprott Gold Miners ETF (NYSEArca: SGDM) is a potent exchange traded fund to consider over the near-term because spring is historically kind to gold miners.
SGDM tracks the Solactive Gold Miners Custom Factors Index and “emphasizes gold companies with the highest revenue growth and free cash flow yield, and the lowest long-term debt to equity ratio,” according to the issuer.
“Gold stocks often experience a strong spring rally seasonally. This is driven by gold’s own seasonality, where outsized investment demand arises at certain times during the calendar year,” according to Seeking Alpha. “This year’s spring-rally upside potential is much bigger than usual. After a correction steamrolled their winter rally, the gold stocks are way behind seasonally.”
What’s Happening in the World of Gold?
History shows the next several months are a good time to own gold bullion, with the long gold seasonal trade proving particularly potent in recent years.
The arrival of gold’s favorable seasonality comes as some market participants remain doubtful bullion can generate further upside. Yet several positive factors are emerging for the precious metal.
“Following a necessary correction, the gold miners’ stocks have spent much of recent months bottoming. This healthy basing process is rebalancing sentiment, preparing the way for this sector’s next bull-market upleg,” notes Seeking Alpha. “That is looking to coincide with gold stocks’ spring rally, one of their strongest times of the year seasonally. That stiff tailwind blowing behind bullish technicals and fundamentals should make for big gains.”
SGDM follows mid- to large-cap gold miners, but the underlying index weighs components based on quarterly revenue growth on a year-over-year basis and the quality of their balance sheets as measured by long-term debt to equity. By focusing on balance sheet strength, the fund has greater exposure to companies with a lower long-term debt to equity ratio, which have a greater ability to weather downturns.
“Seasonality is the tendency for prices to exhibit recurring patterns at certain times during the calendar year. While seasonality doesn’t drive price action, it quantifies annually-repeating behavior driven by sentiment, technicals, and fundamentals,” concludes Seeking Alpha.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.