During the last nine weeks, gold has jumped from $1,180 an ounce to $1,319, a gain of nearly 12 percent.
The yellow metal has managed gains in eight of the last nine weeks, but is the rally overdone?
The 10-day relative strength index, or RSI, hit 88.08 on Friday — the highest reading on this overbought/oversold indicator in the last five years.
The 10-week RSI is showing a current reading of 78.40, which is the highest reading since last November, when the price peaked at $1,226.
There is an axiom, “Overbought can always become more overbought.”
So I wouldn’t rely solely on overbought/oversold indicators. What worries me more is that the large speculators are long more futures contracts on gold than at any point in the last five years. The Commitment of Traders report from October 1 shows the group is long over 280,000 contracts. The only other time large speculators have been anywhere close to as bullish as they are now was last November.
It seems there are a number of similarities between now and last November.
The decline from November to February took gold down almost 15 percent from $1,226 down to $1,044. If we were to see a similar percentage decline during the next few months, gold prices would drop down to the $1,125 level.
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