The XAU in October
So another month has come and gone and we've witnessed yet another month of positive gains for the gold stock sector. In reviewing the monthly and seasonal tendencies for the XAU gold/silver index in August and September, we found these tendencies to be an invaluable guide in telling us the likely trend of the XAU (namely, up). But what of the fateful month of October we are now entering? What does history tell us to expect in the way of either positive or negative things for the gold and silver stock sectors? After reviewing the seasonal tendencies of the XAU since 1984 I believe we can discover some fascinating and useful clues to what we can expect in the month ahead.
Before reviewing the conclusions, here is a capsule summary of how the XAU has fared in each of the Octobers from 1994 to 2004:
October 1994 was a down month for the XAU. The index started the month around 129 and made its low for the month at 115.
October 1995 was another down month for the XAU, which declined steadily from the start to the finish of the month. XAU began October that year at 122 and ended at its low for the month at about 107.
October 1996 saw a narrow, lateral trading range develop between roughly the 115-120 levels. At the end of the month XAU showed a fractional loss compared to the start of the month.
October 1997 was a losing month for XAU. The index started October '97 at a 7-month high for the year near 110 before promptly dropping at mid-month to its low for the year at the 85 area.
October 1998 saw a slight loss for the month, with XAU starting the month around 79 and peaking early in the month at almost 87 before reversing lower and ending the month slightly above 75.
October 1999 was a down month for XAU as the index made its high for the year early in the month at 90 before reversing sharply lower to slightly under the 70 level.
October 2000 was another downer for the XAU index. Starting the month at just below the 50 level, the index declined to an all-time low of 41.61 by later that month. This turned out to be a major long-term turning point for the XAU as it marked the end of the bear market that began in 1996 and the early start of a bull market that has continued until now.
October 2001 was a losing month for the XAU, with the index starting the month at about 59 and bottoming slightly below 52 later in the month. The index finished the month just below 55.
October 2002 was saw a trading range develop with a slight downward bias. Beginning the month at about 68, the XAU finished up for the month around 66.
October 2003 saw a shift in the 10-year seasonal tendency for the XAU. It was the first time since October 1993 that the XAU actually experienced a gain for the month of October. XAU entered that year's October at just under the 92 level and ended up closing for the month at just under 98.
October 2004 was yet another beneficial October for the XAU. The XAU entered the month at about 101 and exited the month slightly under 105, which represented a 6-month high for that year.
What conclusions can be made from the above summary? First, that the month of October is nearly always a bad month for the XAU when the index happens to be in an intermediate- or longer-term bear market or interim declining trend. If the XAU enters October in an upward trend of interim, or larger, magnitude (such as in 1989, 1993, 2003 and 2004), then October is usually a positive month for the XAU. (For clarification purposes, I define an interim trend as a series of net advances made over a period of at least four months duration and underscored by a pronounced rising trend in the 30-day, 60-day and 90-day moving averages).
In fact, there is only one single exception to this tendency for the XAU to rise in October when it enters the month in an interim upward trend: October 1987. This fateful month will be recognized by nearly all readers as being the month of the stock market crash of that year, one of the worst events since the Crash of '29. This destructive event took down nearly everything with it, including gold and silver shares.
Yet in the case of the XAU in '87, two conspicuous features of the XAU chart at that time were present then that are missing now: 1.) A pronounced runaway upward trend that had been underway since the beginning of that year with only a couple of month worth of consolidation from January through September 1987 (the XAU's current uptrend is only about four months old, with the index coming off a major "oversold" level earlier this spring). The XAU's total point gain from January '87 until September '87 was nearly 80 points. 2.) A rather conspicuous negative divergence in several of the XAU's internal indicator in both the daily and weekly charts heading into October 1987.
Minus these distinctively bearish features, the XAU tends to have a fairly productive October in rising trends such as this year, and as we saw in the previous two years. As always, it also pays to let the 30/60/90-day moving average series serve as one of your primary guides throughout the trading month.