Sell in May and go away…
That’s one of Wall Street’s favorite adages.
According to the saying, investors should sell their stocks when the calendar turns to May… then buy them back in November—when the market performs better.
The adage doesn’t hold true every year. But on average, it works. You can see the results in the chart below.
The chart shows the average gains of the S&P 500 each month over the past 20 years.
As you can see, the market has generally stagnated from May to October. But it’s performed much better from November to April.
I’m not telling you to go out and trade based on this chart. I just wanted to show how the adage “Sell in May and go away” got started.
This kind of research is called seasonality analysis.
Other assets also follow seasonal patterns.
For example, the price of heating oil frequently ramps up in the summer in anticipation of a cold winter. And grains often are most expensive during the planting season.
There’s another important asset that follows a seasonal pattern. But few people know about it. That’s why you turn to us at the Daily.
Twice a year, a window opens when you can buy this asset on the cheap and sell for a profit: January through February and July through August.
That asset is gold. And since we’re in July, now is a good time to start buying some.
Now Is a Good Time to Buy Gold
Over the past 20 years, gold has gained about 4.5% during each of the two windows.
Sure, 4.5% does not seem like much. But if you annualized those gains, you’d get a 30% return. Now we’re talking real money.
Below is a seasonal chart for gold.
As you can see, there are two distinct times of the year when it’s advantageous to own gold.
January through February is the first window. And July through August is the second window.
No one is quite sure why gold goes up in the summer (or during the winter, for that matter).
Maybe it’s investors protecting themselves from potential market volatility, which is common in September and October.
Or maybe jewelers are buying up gold ahead of the holiday season.
In the end, here’s what matters: The gold-buying pattern happens consistently. And that’s all you should care about.
Some traders make a living following seasonality trends like this. That’s all they do… Make the trade when the calendar says they should.
So if you’re thinking about buying some gold, the calendar says now is a good time.
The easiest way to get gold in your brokerage account is to buy the SPDR Gold Trust ETF (GLD).
Nick Rokke, CFA
Analyst, The Palm Beach Daily
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