Gold investors have seen a reversal of fortune in Q2, as the gold ETF (GLD) has dropped 13% from its peak of $174 in Q1.
Back in May, I discussed the return of the correlation bubble here. The historically safe haven suffered as all asset classes united in global risk-off.
Gold's correlation to the S&P 500, which was a relatively uncorrelated 0.27 in Q1 climbed to 0.68 in Q2.
But, there are signs gold is starting to decouple again. In May, its correlation was 0.81. So far in June, the correlation has dropped back to where we'd expect, at -0.06.
The decoupling comes at an interesting time for gold investors, given Q3 is historically defensive for equities.
The following table includes an assortment of gold stocks from the Seasonal Investor seasonality database. During the third quarter, Newmont Mining (NEM) offers the best history of finishing the quarter higher than it starts, returning an average 6.12% and gaining ground in 8 of the past 10 years.
Company | Symbol | SECTOR | INDUSTRY | # Up | Q3 |
|---|---|---|---|---|---|
(of 10) | Average | ||||
Newmont Mining | NEM | BASIC MATERIALS | GOLD | 8 | 6.12% |
Agnico Eagle | BASIC MATERIALS | GOLD | 7 | 8.73% | |
Anglogold | BASIC MATERIALS | GOLD | 7 | 5.57% | |
Randgold | BASIC MATERIALS | GOLD | 7 | 13.97% | |
Kinross Gold | BASIC MATERIALS | GOLD | 7 | 9.02% | |
Drdgold | BASIC MATERIALS | GOLD | 6 | 3.63% | |
Goldcorp | BASIC MATERIALS | GOLD | 6 | 6.08% | |
Golden Star | BASIC MATERIALS | GOLD | 6 | 6.81% | |
Harmony Gold | BASIC MATERIALS | GOLD | 6 | 3.03% | |
Novagold | BASIC MATERIALS | GOLD | 6 | 9.42% | |
Seabridge | BASIC MATERIALS | GOLD | 5 | 19.63% |
This next table shows the 10 year history for each of the stocks.
Gold's strength contrasts the broader market's tendency toward tough sledding in summer.
Over the past 10 years, the SPY has gained in a hit-and-miss 6 of 10 years, producing an average return of -0.13%.
This chart shows the average monthly returns for the GLD since its launch in 2005. Historically, gold's performance accelerates through the quarter.
This suggests investors can take solace in knowing their gold hedge should provide some insulation if European contagion accelerates a widening in Italian spreads next quarter, causing a retest of equity markets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
