Will History Repeat Itself

In an article penned in MarketWatch today by Myra Saefong, she looks back at historical data to conclude that the rally which began on December 12 of last year up until Friday logged the longest stretch of consecutive gains in gold futures on record. She is comparing it to a point in time in which gains in gold futures resulted in 10 consecutive gains in July 2011. During that period, gold prices rose from approximately $1480 to $1600 per ounce, resulting in a $120 price gain.

Although this most recent rally broke that record by a single day, this current rally moved gold pricing only $80 higher, considerably less than the winning streak that occurred in July 2011.

Most importantly, the 10-day rally referred to in this article that occurred in July 2011 was a precursor. It was a precursor to the second leg of the rally which would take gold prices from $1600 an ounce to its all-time record high at $1900.

It is for that reason that any similarities between these two rallies allude to an interesting potential outcome; will this current rally result in a second leg that is either equal to or more dynamic than the 11-day rally that just occurred? If so we could be looking for a dramatic price increase of the precious yellow metal.

Another facet of the rally in 2011 which resulted in the highest price gold has ever traded to on record is that it occurred as a result of seven consecutive weeks in which gold prices closed higher than Monday’s open. The seventh week of consecutive gains resulted in gold prices trading at roughly $1850, and the next three weeks that followed would take gold to its record high of $1920.

Another interesting similarity of this most recent rally of 11 consecutive days of higher pricing and the rally that occurred in July 2011 is that immediately following the price increase the market consolidated for a period of time.

In the case of the 2011 rally, what followed was a simple consolidation that was a precursor to gold running another $250 higher. Which beckons the question as to whether this current rally will result in a period of consolidation as a precursor to dramatically higher pricing.

Although the likelihood of this occurring has a low probability, at best, the fact that there are similarities should be noted as every now and then history does repeat itself.

Wishing you as always, good trading,