Gold’s impressive run continued with Monday’s action as the precious metal rallied to a new all-time chart high at 3750.
Gold’s impressive run continued with Monday’s action as the precious metal rallied to a new all-time chart high at 3750, marking its fourth buy signal with a double top break at 3700. So far in September, Gold has added 7.80% to bring the commodity to up 42% on a year-to-date basis through Monday’s close (9/22), marking the best performance to this point in any given year since 1978.
With the recent rally, Gold has found itself in overbought territory forgoing three weeks now. For those not familiar with the Weekly Overbought/Oversold reading, measures how far above or below the current price is from the 10-week (50-day) moving average with ‘extreme’ territory being +/- 100% (+/- 3 standard deviations from the 10-week MA). Seeing any security maintain a Weekly OBOS of +100% overbought for three weeks or more is rare. In fact, going back to the beginning of daily pricing data in 1975, Gold has had only five other times the Weekly OBOS reading has sustained above 100% for three weeks or more – the longest of which being five weeks in May 1993.
Given this rarified air, the table below examines the forward returns of Gold (GC/) following these periods of sustained overbought positioning. Returns for the S&P 500 Index (SPX) are included for additional perspective. In the short to intermediate-term gold pulls back from the elevated levels, while longer-term returns a mixed. U.S. Equities tend to rebound following such a rally by gold in the short- to intermediate-term, but not in an overwhelming manner. Longer-term returns for SPX improve, suggesting that whatever drives gold to highs weighs on equities in the short-to-intermediate-term before seeing a resolution in the long-term.
With many of these dates occurring around inflationary periods, they provide a lens into the potential action that may follow in the coming weeks and months. Given the extended position for gold, investors could see the commodity consolidate or pullback as the third quarter wraps. From there, investors will see what impact the path of interest rates in 2025 may have on inflationary pressures and gold prices.
