Beware gold stocks in October

Key points

• Gold stock miners tend to show weakness during October
• History suggests that investors carefully consider how much exposure they want to gold miners during the weakest period of the year

Gold Bugs Index seasonality stands as a warning

Ticker HUI represents the Gold Bugs Index, which tracks an index of gold mining stocks and has a history dating back to 1957.

The chart below displays the Annual Seasonal Trend for ticker HUI. The period of significant concern is apparent and encompasses the entire month of October.

To better understand the potential danger associated with holding gold stocks in November, the chart below displays the cumulative growth (or, more accurately, decline) of $1 invested in gold stocks only during October every year from 1958 through 2022. The cumulative result has been a loss of -90.3%.

Does this mean that gold stocks never rise during October, and investors should avoid them like the plague? That's not exactly the lesson. The chart below displays the percentage +/- for ticker HUI during October each year. Note that HUI gained more than 10% on six occasions during this supposedly awful month. Also, results have somewhat flattened out in the last decade, and October has shown a gain in four of the previous five years.

The table below summarizes the October performance for HUI.

The bottom line is that results have skewed decidedly to the negative side.

What the research tells us…

The good news is that during the last 5-10 years, gold stock performance during October has improved from disastrous to merely so-so. Based on the information above, there are two key points to keep remember. First, if you plan to hold gold stocks during October, you must understand that you may be swimming upstream against a well-established historical tide. Conversely, it is a mistake to assume that gold stocks are doomed to decline solely on the calendar month (a 41% Win Rate is different than a 0% Win Rate). 

The bottom line: the relevant question remains "Is this a good place to allocate capital right now?"