The Synthetic Systems forecast posted at the beginning of the quarter expected a weak performance from gold. And we haven’t been disappointed. The past couple of days, however, gold has been taken out and shot. Then the lifeless carcass was dragged up, nailed to a post, and shot again. Cousin silver has taken even more abuse. Gold and silver had disproportionately benefitted from the flight from dollars over the summer. Commodity investors’ attention has since turned to more industrial commodities like copper, platinum, and most conspicuously, oil. Oil has burst aflame, sucking the financial oxygen from the commodity room.
Could it have gotten a little overdone? I think so. Short term moves are notoriously tricky to call, but investors who were looking for an opportunity to add to positions in gold and silver anyway might find this an attractive point to do so. My indicators show gold and silver particularly oversold in relation to stocks amid markets giddy with enthusiasm for the reopening trade. On a longer term basis oil is still at depressed levels and has more room to run, but the anti-gold-rush crowd has overplayed its hand. A tradable low is nigh.
新冠肆虐，注意安全！
好…保持健康！
What does oversold mean? How is that measured?
Good question, CB. The context of the post is all that’s really necessary to understand, but the expression “oversold” (and its opposite “overbought”) is commonly used in technical analysis to denote a condition where the price of something has declined to a level below its trend. Generally the price has moved “too far too fast”, with the implication that the probability of reversal is elevated.
The precise parameters are a subjective matter, depending largely on the time frame under consideration, e.g. hours, days, weeks … etc. In short, it’s a judgment call. In the context of this post, my opinion was informed by a study in which I took the natural logarithm of the ratio between the current level relative to the world stock market and applied an exponential moving average with a time constant corresponding to a delay of 1/8 of a year, then compared the displacement with the historical record (at this point it may be apparent why I didn’t attempt to explain it in detail). Why? In my experience it’s been useful.
In this case it’s worked out rather well … gold put in a low just six days later and now is at a level over 4% higher than at the time of my post less than a month ago, making the call a profitable one.