Gold at All time Highs. Time to buy?
Gold has reached a new all-time high of $2,860/oz, raising concerns among investors about the risk of buying at the peak. In this analysis, we examine gold’s historical performance since 1980 till today across various drawdown intervals, estimating the probability, average, and median returns of investing at record highs over different time horizons. Our goal is to provide a data-driven perspective on whether buying gold at an all-time high has historically been a profitable long-term strategy.
Probability:
The table above indicates that gold has traded at all-time highs (0 to -5% drawdown) only 7.75% of the time since 1980. Historically, the probability of achieving a positive return after buying at these levels is 72% over a 3-month period and 78% over 1 year. However, beyond the short term, the likelihood of positive returns declines significantly, falling to 55% over 3 years and 37% over 5 years.
Notably, investors buying at all-time highs have historically experienced higher short-term success rates (3 months to 1 year) compared to those entering after a 5-10% drawdown. This pattern highlights the strong trend-following behaviour of gold prices, where momentum tends to persist in the short term before weakening over longer investment horizons.
Median Returns:
The table above presents gold’s median returns across various drawdown intervals and investment timeframes. When gold is at all-time highs, its short-term performance (3 months to 1 year) outpaces all other drawdown levels, reflecting strong momentum. However, returns deteriorate significantly over longer horizons (3 to 5 years), suggesting once more that while gold exhibits strong trend-following behaviour in the short term, it seems to mean revert over long-term holding periods.
Mean Returns:
Unlike median returns, mean returns remain positive across all timeframes and drawdown levels, suggesting that gold exhibits asymmetric upside potential—its price increases tend to be significantly larger than its declines, skewing the mean higher. This dynamic aligns with gold’s role as a safe-haven asset, where periods of market uncertainty or crisis drive sharp price surges, outweighing the more gradual or limited drawdowns typically seen in calmer market conditions.
Conclusion:
This analysis highlights gold’s strong trend-following behaviour in the short term and its asymmetric upside potential over time. Historically, buying at all-time highs has yielded higher probabilities of positive returns over short-term horizons (3 months to 1 year), making it more favourable for momentum-driven strategies. However, for long-term investment horizons, gold has delivered stronger performance when purchased during deeper drawdowns (-20% to -30%), given its long-term mean reversion nature.