Sell in May and Go Away in the Goldies?

There is a lot of talk about “sell in May and go away” every year when spring begins to fade into summer. This year is no different especially after today’s bearish reversal from outside the upper Bollinger Band in the GDX:

 

GDX (Daily)

GDX_Daily_5.2.2016

Seasonality is an often misinterpreted yet very simple subject. Summer has a tendency to be a ‘heavy’ period of the year for the mining sector for many reasons; there is less news flow as most companies drill during the summer and then report drill results in the fall. However, if we look at the facts July is the only month that clearly has a strong negative bias while August and September are without a doubt the most bullish months of the year for the gold miners:

 

HUI (Gold Bugs Index) Seasonality Since 1997

HUI_Seasonality

While May has been negative (58% of the time) more often than it has been positive since 1997, May has actually averaged a gain of 1.9%. Selling in late May and buying back in late July/early August seems to be the most reliable seasonal trade in the gold miners.

With the gold miners (GDX) more than doubling from the January low a period of consolidation/pullback during the next couple of months would be quite reasonable. However, you can count on pullbacks to be bought as portfolio managers seek to increase exposure to a sector that has resumed its secular bull market after a grueling cyclical bear market.