Gold's August rally has pushed the metal into overbought territory for the first time since March, according to Bespoke Investment Group. Historically, similar signals have preceded weaker returns over the following weeks and months.
Gold futures have surged roughly 8% so far this month, a rally Bespoke Investment Group says is starting to look stretched. Last week alone, the metal climbed 7.1% for its best weekly performance since January. It also reached its highest level since June, amid weaker-than-expected payrolls data and hopes for a deal to reopen the Strait of Hormuz.
A rare overbought signal
The rally lifted gold above its 50-day moving average and pushed it into overbought territory for the first time since March 10. On Friday, the metal closed a full standard deviation above that 50-day average — a first in 103 trading sessions.
According to Bespoke: "That is one of the lengthier streaks without an overbought reading on record." As a result, Bespoke's historical data suggests gold's momentum could fade in the near term.
What history suggests comes next
Following comparable streaks of more than 100 trading days without an overbought reading, gold has historically averaged a 0.22% decline the following week. Over the next month, the metal fell 0.34% on average, then 0.53% over three months. The largest average pullback came 12 months out, when gold fell 0.62%. Only 37% of those historical episodes were positive a year later.
Source: US Top News and Analysis
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