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It turns out that the gold uptrend can last quite a long time. Nonetheless, when a correction arrives, the yellow metal could see a drop over 17%, according to Daniel Ghali, Commodity Strategist at TD Securities. Currently, gold is hovering near the lower end of its daily trading range, around the $1985 region.

Key quotes

“It feels good to be a gold bug. After all, it’s been hard to lose money being long. In fact, the bulls are rushing to buy the yellow metal with nearly +100% of momentum signals tracked by our ChartVision indicator pointing long, leading to +93% of signals long on a 60d moving average basis. The underlying macro tailwinds are only analogous to the financial repression in the post-WWII era, which provides an incredibly compelling narrative for higher gold prices.”

“But, how long can a good thing last? It turns out, it can last for quite some time. Despite a small sample size, instances of consecutive extreme readings in momentum signals have historically averaged at 45 days, but with a wide distribution. In other words, timing a momentum overshoot is incredibly difficult.” 

“What is more clear, is what comes next, when momentum stops paying. As upside momentum subsides following extreme instances, forward returns tend to be skewed negatively, with sharp drawdowns and limited upside. A consolidation period could last for months, with subsequent drawdowns over 17%. Don’t fight the trend, unless it shows a sign of weakness.”