Gold's momentum chasers may be in for disappointment

Gold has just concluded its best quarter since 1986, but those looking to buy it now might wish that it had plunged to start the year.

That may sound counterintuitive, given the perception that commodities tend to trend in one direction or another for long periods of time. But a look at returns from the past 30 years shows that gold tends to have better results in a given quarter when the preceding quarter was terrible than when it was terrific.

Read MoreGold heads for biggest quarterly rise in nearly 30 years

To do this comparison, the past 30 years of quarterly returns were narrowed to those with returns in the top 10 percent (with a gain of 9.8 percent or more) and those with returns in the bottom 10 percent (with a loss of 5.5 percent or more). The next step was checking on the returns in the quarters that followed those best 12 quarters, and on the returns that followed those worst 12.

The average quarterly move after a fantastic quarter is a 2.5 percent rise, which is better than the average move across all quarters of a 1.3 percent rally. However, the average move across a wretched quarter is a 3.4 percent rise, with the median even higher, at 4.0 percent.

Mean return
Median return
All quarters 1.32 0.48
Quarters after top-10% quarters 2.54 2.87
Quarters after bottom-10% quarters 3.41 3.95

For instance, the last time gold rose more than 10 percent was in the third quarter of 2012. In the final quarter of that year, the metal lost 5.5 percent of its value.

Actually, over the past 30 years, gold has followed a top 10 percent quarter with an even better quarter only once. And it has never followed a bottom 10 percent quarter with a worse quarter.

This is probably the finding one would expect, given the impact of regression to the mean. But it should at least encourage gold bulls to curb their enthusiasm.

That is, for the same factors that led gold to jump 16.5 percent in Q1 to spur a comparable rally in Q2 would be an unusual outcome indeed.

Read More Quiet times for stocks tend to end with big drops


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more