U.S. Markets closed

Gold Has Been This Overbought Only Three Times in Two Decades

Ye Xie

(Bloomberg) -- Gold is almost guaranteed to record losses in the next two weeks, if history is any guide.

The 14-day Relative Strength Index for the yellow metal soared to 86 on Monday, well above the level of 70 that typically suggests securities are overbought. Previously, there have been only three times since 2000 when the RSI rose above 85, and in each instance bullion fell over the next 10 trading days. The loss averaged 1% compared with a gain of 7% over the previous 10 session.

To be sure, in all three occasions -- October 2010, February 2016 and June 2019 -- gold eventually resumed its rally. But the momentum had slowed. Gold performs best when interest rates fall and the dollar weakens. Without a further escalation of Middle East tensions, the bulk of the moves in rates and the dollar may be over for now. And the same is probably true for the bounce in gold, at least in the short term.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

To contact the editor responsible for this story: Eric J. Weiner at eweiner12@bloomberg.net

For more articles like this, please visit us at bloomberg.com

©2020 Bloomberg L.P.