It is not always wise to invest in anything based on "seasonal" patterns, as 2008 showed pretty clearly. But that said, August is traditionally an excellent time to buy gold. And Raymond James analysts Brad Humphrey and Bart Jaworski pointed out that gold has tracked its seasonal pattern very closely this year — it did well in the winter, sold off in early spring and rebounded in May.
"This seasonality has historically provided excellent buying opportunities early in [the third quarter] as demonstrated in seven of the past eight years," they wrote in a note to clients.
They recommended that investors take advantage of any weakness in gold or silver prices over the next several weeks to buy equities. They pointed out that gold demand usually picks up from September onwards as the wedding and festival season in India begins, and investors return from holidays and get back to work.
The only year in the current gold bull market where the seasonality effect was totally lost was 2008, when the credit crisis kicked in and gold fell along with everything else. But that was an anomaly, they noted.
In terms of investing, Mr. Humphrey and Mr. Jaworski prefer gold equities to the gold exchange-traded fund, pointing out that equities have historically outperformed the gold price in the second half of the year, and the fundamentals look good right now.
Balance sheets have been repaired following the recent credit scare, interest rates are low and input costs have stabilized and in some cases are declining.
In a rising gold price environment, precious metal equities should be well positioned to expand margins and generate cash flow growth.
They also believe that the equities remain undervalued relative to the gold price.
Their current top picks include Yamana Gold Inc. (NYSE:AUY), Eldorado Gold Corp. (NYSE:EGO), Detour Gold Corp. (OTCPK:DRGDF), Pan American Silver Corp. (NASDAQ:PAAS), and Silver Wheaton Corp. (NYSE:SLW). For investors with high risk tolerance, they recommend Detour and Golden Star Resources Ltd. (NYSEMKT:GSS).