What to Expect After Gold's Multi-Month Selloff

Gold's losing streaks have denoted an oversold market

Senior Quantitative Analyst
Oct 5, 2022 at 12:45 PM
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Stocks and bonds have been selling off over the past several months, but the selloff in gold in particular, has been more persistent. Gold has moved lower six months in a row, ending September at its lowest monthly close in two and a half years (March of 2020). The chart below shows monthly closes for gold since 1972, the first full year after gold lost its official tie to the dollar. The markers show six-month losing streaks. Next, I look how gold performed after these streaks and how stocks performed around these instances as well.

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Next Month Has Always Been Positive

The table below shows how gold has performed after six-month losing streaks. These streaks have denoted an oversold market. In fact, there has never been a seven-month losing streak. Gold has easily outperformed after these streaks compared to typical returns. For example, six months after the losing streak, gold has been positive five of five times averaging a return of almost 20%. Typical gold returns have been about 3.8% over six-month periods with a 57% chance of being positive.

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Stocks During Gold’s Losing Streaks

The table below shows how gold and the S&P 500 Index (SPX) performed during the losing streaks. Stocks have been awful over the last six months with the S&P 500 down over 20% over that time. The index is down 5% over the past three months. There was only one other gold losing streak in which stocks were also down, which was in March of 1982.

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Finally, the table below shows how the S&P 500 performed after each of gold’s six-month losing streaks. After these five returns -- not enough to draw conclusions -- stocks tended to underperform, at least in the short term. Stocks were down in the next month after the last three signals. Looking at the six-month losing streak that ended in March of 1982 (the streak in which stocks also struggled), stocks and gold were both very strong over the next six months and one year. As you can see below, the S&P 500 gained 7.6% over the next six months and gained 36.6% over the next year. Looking at gold returns in an earlier table, the metal gained 24% over the next six months and almost 30% over the next year, which is a hopeful note to end on.

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