first majestic silver

Why Buy In July?

July 16, 2014

Rarely do financial writers go back and reference work from years gone by. It forces us to face up to our mistakes! Or on occasion, it validates that we actually do know what we’re talking about and did call it right. I’m proudly going to take advantage of the latter in this situation, and look back to a piece I have been writing and re-writing for years. So why buy in July? Read what we published last year:

At Merit, we try not to focus too much on gold’s short and mid-term prospects. Often times, making decisions based on what one thinks gold might do in the next few months leads to a stressful buying process at best, or at worst, disastrous timing failure. Since the metal is volatile, it’s often very difficult (even for industry insiders, analysts and “experts”) to call gold’s direction in the near-term. There are however, a couple instances where we think discussing monthly patterns can be a very useful tool. The old “buy in July” argument is one of them, considering it has proven true 10 years in a row.

If you were a baseball scout and we told you we had a prospect whose ten year batting average was 1000, we’d probably get your attention right? Well, check this out: An investor who bought gold at the July low could have sold at a profit in the next six months for each and every one of the last ten years. With the exception of two years, that profit would have been at least 16%. I’d challenge you to find any other market with such a track record.

The fact that gold experiences a slow season in the summer is not news. The metals markets tend to cool off and experience very low volume and contract interest in the summer months. Though this can be said about many market sectors, it is especially true for gold. We have seen very low trading activity this month which is quite the norm in July. Come August and September however, the gold market tends to come back to life; often with a vengeance.

Rarely will I give an outright prediction. When writing financial market columns like this, the first rule is to never actually say anything of substance, so you will never be proven wrong! That said, I’m fully willing to come out and say that I think we will see an opportunity to sell for at least double digit gains at some point in the next six months. Aside from the clearly repetitive pattern shown above, gold has been even further depressed this month by rampant manipulation and over selling. In that sense, the spring board has been loaded even further than it normally would be in July, which I believe makes this one of the best summer buying opportunities we’ve seen in some time. We’ll check in next year and see if we made it 11 years in a row, or if I owe you all an apology! I’m betting on eleven.

Now let’s update the chart for this year:

At this point, we can make it 11 of 11. Over the last 11 years, buying at the July low and then selling later in the year at the high would have generated an average 19% return. I know it’s not realistic to expect perfect timing on the buy and sell, but it really does speak to the point that gold is cheap in July. It has been for the last 11 years running. Even last year, when the bear market took hold, this still held true. Do you want to bet that 2014 will break the trend?  I don’t. 



Raised in Portland, OR, Mike started with Merit Gold & Silver in 2006 after graduating from Harvard University with a degree in Government. He has been a guest contributor for the Wall Street Journal and International Business Times. He often provides expert analysis on The Gold Standard Radio and The Vault, online shows about precious metals. When Mike's not overseeing trading, research and operations for Merit, he's an avid outdoorsman, competitive skier and endurance mountain biker.

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