The World Gold Council said this week that investment demand for gold rose 56% to 382.1 tons for the third quarter, “as heightened economic and financial uncertainty stirred safe haven buying.” That certainly seemed the case on Friday, as gold futures finished almost 6% higher, as it briefly climbed over the important psychological barrier of $800. However, gold’s settlement price of $791.80 was almost $10 off its daily high, and that price, surprisingly to us, is 2.5% lower than the price of one year ago.
The Gold futures market does close two and a half hours before the close of the New York Stock Exchange, so we do wonder whether the strong closing rally in equities will put a mark on gold’s luster. So is the Friday rally in gold an exhaustion rally? What does history suggest?
Q: What has happened in the past when gold rallies more than 5% in one day?
A: The trend has started slowly, but by the end of weeks three and four, gold futures have declined 82% of the time, and the average decline has been twice as large as the average gain.
When the gold market gains more 5% on a Friday, futures have fallen 88% of the time at the end of weeks three and four. Note that the average decline has been as large as 7%, while the average gain has been less than 1%.
For more Market History go to www.markethistory.com
Robert J. O'Brien Jr. is President of County Cork, LLC, a Commodity Trading Advisor (CTA) based in Skokie, Illinois.
