Further upside to seasonal gold miner recovery

AS we embark on a new year, the seasonality effect on gold miners comes into the spotlight again. We will be referencing the VanEck Vectors Gold Miners ETF (GDX) as a proxy for the gold miners for this illustration. GDX tracks a market-cap-weighted index of global gold mining companies.

Since inception, back in 2007, a bottom in the GDX usually forms around the December and January period where it lasts for one to two months before rolling over. In total, there were 11 examples to draw from since 2007. Out of the 11 examples, two failed to signal any significant bottom. The GDX did make a marginal rebound on Dec 27, 2010 and Dec 20, 2012, but the recovery was short-lived. Both recoveries ended swiftly on Jan 3, 2011 and Jan 2, 2013 respectively. On the other hand, the rest of the nine examples worked out perfectly in signalling a bottom around December and January. Our studies have shown that the average rebound that follows after the seasonal bottom forms is +39 per cent, trough to peak.

For example, the most recent seasonal rebound happened on Dec 20, 2016 where the GDX bottomed out perfectly and experienced a strong bull run of 38 per cent. The strongest rebound and reversal in the downtrend was signalled by the December/January seasonal phenomenon as well in January 2016. The GDX was bottom bouncing around the 13.00 low since August 2015, and the bears remained in control throughout the whole period until the December/January seasonal phenomenon took place. The GDX fell briefly below the 13.00 on Jan 19, 2016 where the seasonal rebound happened. The GDX then made a strong recovery and entered into a raging bull market. During the first half of 2016, the GDX rallied 150 per cent off the seasonal bottom.