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Gold's double top does not bode well

Dean Christians
2022-09-16
Gold formed a significant double top pattern when it closed at a new 2-year low on Thursday. After similar lows, gold declined 100% of the time over the next six months.

Key points:

  • Gold futures closed at a new 2-year low on Thursday
  • The new multi-year low is the first occurrence after a 1-year high
  • After similar lows, gold futures declined 100% of the time over the next six months

Gold futures confirm a significant double-top pattern with a 2-year low

The relentless rise in interest rates and the Dollar index (DXY) on the back of one of the most aggressive Federal Reserve tightening cycles in history has weighed heavily on risk assets and even safe havens like Gold. 

Gold futures closed at a new 2-year low on Thursday. The low is the first occurrence after a 1-year high and confirms a bearish price pattern known as a double top. 

Similar multi-year lows in gold futures preceded negative returns

The first two-year low in gold futures after a 1-year high does not bode well for the shiny metal. Returns, win rates and z-scores look unfavorable across most short and medium-term time frames. Six months later, gold was lower 100% of the time.

Gold miners don't look much better with flat to negative returns across short and medium-term time frames. The 1976 signal is the only time the miners traded higher across all periods. 

What the research tells us...

The new 2-year low in gold futures looks troubling, especially given the double top pattern. After similar signals, gold was lower 100% of the time six months later, and miners didn't fare much better. 

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