Gold set another record Wednesday–settling up $22.80 at $1,243.10 an ounce for the active June Comex contract–and though it’s showing signs of being overbought technically, recent history suggests the upward momentum could continue to carry the metal higher.
That’s the conclusion from Bespoke Investment Group based on the performance of gold after sharp spikes. The metal’s price action has moved three standard deviations above its 50-day moving average. (If you didn’t take statistics, slept through it or forgot most of it, that’s a big move above trend.) Going back to 1980, there have been 25 such episodes, but the record of scoring further gains after such an extended move is decidedly mixed.
But, B.I.G. continues, the last three times when gold has had such a sharp move–in November 2005, September 2007 and September 2009–gold has had double-digit gains in the subsequent three months, ranging from 12% to 22%.
The difference, the research outfit suggests, was the introduction of the gold exchange-traded fund, the SPDR Gold Trust (GLD), which of course hit a new intraday record of 122.23. (Each share of GLD represents one-tenth of an ounce of the metal.)
The introduction of GLD and other gold ETFs allowed individual investors to buy gold easily, B.I.G. writes. And the appeal of gold is extending beyond Troglodytes who satisfy their paranoid fantasies by stockpiling canned goods. Richard Russell, the dean of technicians who has been penning the Dow Theory Letter for a half century, points out gold has been in a bull market for a decade (which he recognized early on.) Indeed, if the Dow had matched gold’s performance over the past 10 years, the B.I.G. folks note, it would be over 50,000. That’s hardly cause for condescension toward gold bulls.
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