Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Most Boring Gold Market Ever?

Commodities / Gold and Silver 2012 May 03, 2012 - 01:33 PM GMT

By: Ben_Traynor

Commodities

Best Financial Markets Analysis ArticleWe've just had the quietest 40 days since the financial crisis began...

HOW OFTEN are gold prices as range bound as this? 

The London gold fix on Wednesday afternoon marked the fortieth trading day in a row that gold fixed between $1600 and $1700.


The last PM Fix outside this range was on March 5 ($1705 an ounce). Spot gold prices did manage to poke their head above the $1700 mark later that same week, but since then gold has gone pretty much nowhere. Is it common to see such a protracted period of sideways trading?

One way of gauging how much (or indeed how little) gold prices have moved in that time is to calculate the coefficient of variation (CV) – simply the standard deviation divided by the mean average – and compare it with rolling 40 day periods. 

The chart below does exactly that, going back to 1968, the year the London Gold Pool collapsed. The vertical green lines represent the final day of any 40 day period with a lower CV than the 40 trading days just gone, with the gold price shown over the top (left hand axis):


By the CV measure, gold has not had a quieter 40 days since mid-2007, right at the start of the financial crisis. 

A block of six trading days – August 30 to September 6, 2007 – each marked the end of quieter 40-day periods than the one we have just had. There is a similar cluster of four days in July 2007.
As you can see from the chart, these days have tended to come in consecutive blocks – which makes sense since we are taking rolling statistical measures. This allows us to pick out specific quiet periods when gold prices were not really doing much.

Over the last 10 years, there have been only five 40-day periods quieter than the one we have just had – the two in 2007, another two in 2005, and one towards the end of 2002.

By contrast, the 1990s saw loads of periods quieter than the current one. So too did the late 1960s and early 1970s, as we would expect since gold was, until August 1971, still officially tied to the Dollar at $35 an ounce (though a two-tier market allowed for a fluctuating price for non-central bank transactions).

Of course, 40 trading days is a rather arbitrary span of time to pick. But similar patterns emerge when we look at other rolling periods.

Wednesday 2 May 2012 also marked the quietest 20 trading day period by the CV measure. Here's the chart for rolling 20-day periods going back to 1968:



The quietest 60-day period so far this year was actually that ended on April 13. Nonetheless, for ease of comparison, here is the chart showing 60-day periods with lower CVs than the period ended Wednesday this week:



We can draw a few observations from the above:

  • Gold prices have rarely been this quiet since the current financial crisis began 
  • When the last bull market ended in 1980, it didn't end quietly – hence the big gaps between the late 1970s and mid-1980s
  • If history repeats, these relatively flat gold prices could be a precursor to the Big Move (as was the case in the mid-1970s), or they could herald a long, slow decline (see mid-to-late 1980s)
  •  

Something else happened this week. As my BullionVault colleague Adrian Ash notes, spot market gold prices on Monday ended a calendar month lower for the third month in a row – a rare event indeed in a bull market. 

It is also worth checking out Adrian's log scale chart (reproduced below), which shows that gold prices over the last ten years have made a much smaller proportionate gain (shown as the vertical distance moved) than they did in the ten years to 1980:



Putting this all together, both bulls and bears could make a case. The bulls might argue that it is just too quiet for this to be the beginning of a sustained downtrend, and that gold prices are taking a breather before making another move up.

Bears might counter that since this bull market has seen a gentler rise, it may well be followed by a gentler decline, which could be what we are seeing right now.

Ultimately, gold prices over the long run are determined by fundamentals. One of the key fundamentals is real interest rates i.e. nominal rates minus the rate of inflation. And the key central bank to watch is, of course, the Federal Reserve.

There have been signs in recent weeks that the US economy is picking up. This has dampened expectations of further quantitative easing, and has also raised the prospect that the Fed could raise its policy interest rate sooner than previously expected. Few would go so far as to declare the crisis over, but doubts have crept in about how accommodative the Fed will remain.

I believe this uncertainty is the main reason trading volumes have been low, and gold prices have been stuck in a range. It doesn't help that we are headed towards summer, when the gold market tends to be much quieter (2011 notwithstanding).

If the tentative US recovery continues, more investors will likely surmise that QE will not happen, and that a rate hike will be sooner rather than later. On the other hand, if the recovery stalls, QE could shoot back up the agenda.

Sooner or later, gold prices will break out of this range. Whether it will a break higher or a break lower depends a great deal on the health of the US economy.

By Ben Traynor
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in