Gold Is Nocturnal Too: Daytime vs Overnight Performance

In my recent post “The Markets are Nocturnal” I showed that the bullish trend on the S&P 500 over the last 15 years has been the result of the overnight market, NOT the daytime market.

In this post, I want to go through the same exercise, dividing returns between the daytime and overnight markets, for the Philadelphia Gold and Silver Index [XAU]. I’ll show that like the S&P 500 (though not to the same degree), gold stocks are driven by what happens after the close.

Daytime vs Overnight Gold Market [1984 to 06/2008]

The three lines above represent the Gold and Silver Index (blue), daytime changes (green), and overnight changes (red) between 1984 and 06/2008. The chart has been logarithmically scaled.

From mid-1987 through 1992 the overnight market put huge downward pressure on gold. Despite very good returns in the daytime market, the overall market was net flat.

Compare that to the huge gold run up we’ve been having since 2000. Almost the entire current bull run in gold is a result of the overnight market. Over that same period, it’s been the daytime market that has been putting downward pressure on the index. See zoomed in chart of 2000 to 06/2008 below.

Current Bull Market [2000 to 06/2008]

Now, as anyone who has read my ramblings knows, I don’t do fundamentals. And I especially don’t do fundamentals when it comes to gold. But the results beg the question: how were the fundamental factors driving gold from 1987 to 1992 different from our current bull market? In both cases, because the market was moving overnight, it would appear that international factors had a huge influence (very negative in the first instance and very positive in the second).

One last note: the gold index goes completely flat over the last year or so. That’s a result of a change in the way the index is calculated, NOT in a fundamental change in the gold markets. (For now) the overnight trend in gold remains intact.

Comments

[Znowa:]

First interesting article. However, I am confused by the last paragraph. You state that the index has been flat for the last year while the overnight trend remains intact. In the graphs it is the red line that has been flat and the red line represents overnight changes not the index (blue line). Can you explain the discrepancy?

2008 Sep 01 09:21 AM

[GMiki1:]

I watch gold at night, too, and overnight peeks are, indeed, flattened in NY. Even today, Labor Day, when the U.S. interests shouldn't be trading.

2008 Sep 01 11:42 AM

[Gigem77:]

Your 4 articles are interesting and informative. I hope that you will keep contributing.

2008 Sep 01 12:25 PM

[jt:]

Actually, if you want to see where the REAL variance comes from in the prices of gold and silver, all you need to do is create a chart using realtime prices looking at the London and the CRIMEX prices. Overlap them over the past 10 years and you will see major dips that occur at and after 3AM (ET), which is the AM Fix in London, after the markets open on the CRIMEX, and after the PM Fix in London. Those are the most influential paper markets (TOCOM also has some heavy hitters who by all analysis trade in league with [God forbid anyone would say "in collusion with"] London and NY) and the markets that have created the discrepancy (actually, for those who can handle the concept of "manipulation" w/o having to check if it's a PC word in present company), or I should say manipulate the paper prices down, regardless of the fundamentals of the physical metal. jt

2008 Sep 01 03:43 PM

[TERN:]

Do this exercise with other precious metals, such as Pd, which is heavily traded in Zurich , and you will see an even more pronounced difference in price action in the different hours. I'm sure some people can make money trading these anomalies.

2008 Sep 01 05:57 PM

['2001 archi...:]

Thank you, very informative....am somewhat of a neophyte...what 24 hr
do you recommend?

2008 Sep 01 09:02 PM

['2001 archi...:]

See above: 24 hr broker I meant.

2008 Sep 01 09:04 PM