Amid a confluence of supportive factors, including increased central bank purchases, escalating geopolitical tensions in the Middle East, and a declining interest rate environment, gold has demonstrated remarkable strength this year. Year-to-date, gold prices have surged nearly 30%, outperforming all major U.S. stock indices. However, current market dynamics suggest that gold may now be overbought, with its price exceeding the 200-day moving average by more than 14.1%—a level that ranks in the 95th percentile historically since 1984.
Given this overbought condition, what can we infer about gold’s near-term price trajectory?
Historical data over the past 40 years indicates that when gold’s price reaches the 95th percentile above its 200-day moving average, forward returns tend to weaken in the short term. Specifically, the 20-day and 50-day forward returns have averaged -0.7% and -0.74%, respectively, with advance percentages of only 41.1% and 34.5%. Even at the 100-day mark, the forward return shows a modest gain of 0.3%, while the advance percentage improves slightly above 50% to 54.9%.
Unless geopolitical risks, particularly in the Middle East, intensify, these statistics suggest that gold’s short-term performance may lose its upward momentum. Nonetheless, the mid-term outlook remains more constructive, assuming the current supportive factors persist.
