Gold’s Impressive Surge Continues – MINING.COM

Technically this past year’s surge remains an extraordinarily-large upleg within a bigger bull market. Bulls are defined as 20%+ gains off major lows. Within those usually-secular uptrends, smaller uplegs and corrections meander. Uplegs last until they are formally ended by 10%+ corrections, which sometimes cascade into 20%+ bear markets slaying bulls. Sub-10% selloffs within uplegs called pullbacks don’t kill them.

As long as mid-upleg selloffs remain in that pullback range, uplegs remain intact. It’s pretty amazing to see gold blast 50%+ higher without retreating 10%+! Gold’s last couple 40%+ uplegs achieving monster status both crested in 2020, at 42.7% and 40.0% gains. Those were followed by correction-magnitude selloffs of 12.1% and 18.5%, which finished those uplegs. Subsequent ones can’t emerge until gold bottoms.

From late October to mid-November 2024, gold suffered an 8.0% selloff at worst which is a larger pullback. It wasn’t a correction-grade drop resetting gold’s upleg status. I had been warning that one was inevitable and looming, first in our weekly subscription newsletter in late September. I wrote “Specs’ gold-futures positioning being excessively-bullish betting on gold upside is actually really bearish for the yellow metal.”

“This continues to worry me considerably, as odds sure favor an imminent big-and-sharp gold selloff. It will probably be a larger pullback, 6% to 9%ish.” Later in early October I wrote an entire essay analyzing gold’s high selloff risk. The reasons were gold was extremely-overbought and speculators’ gold-futures longs were exceedingly-high, just hitting their 5th-highest levels on record! Both portended sizable gold selling.

Gold defied that for a bit, surging again into late October on momentum buying. Gold finally crested at $2,786 on October 30th, stretching way up to 1.183x its 200-day moving average! That is extremely-overbought, meaning gold had surged too far too fast for those price levels to be sustainable based on its own historic precedent. Dividing gold’s closes by its 200dma and charting resulting multiples quantifies this.

I call this Relative Gold or rGold, and this chart is updated from that gold-selloff-risk-high essay. Gold and its key technicals are rendered on the right axis, superimposed over rGold in red off the left. Dividing gold by its 200dma effectively flattens that important technical baseline to horizontal at 1.00x. Then gold’s price action relative to it is revealed in constant-percentage terms. Gold looked precarious before the elections!

Gold soaring 18.3% above its trailing 200dma on October 30th was exceedingly-rarefied territory. How rare? Over the last decade, gold has only closed 18%+ above its 200dma on 0.8% of all trading days. Seeing gold that overbought is less than a 1-in-125 event! And all past episodes seeing such extreme overboughtness marked gold toppings, usually major ones. Big correction-grade selloffs normally follow.

So why was I only expecting a “9%ish” pullback? This monster gold upleg has proven very unusual on multiple fronts. Gold’s previous two monster uplegs both peaking in 2020 were overwhelmingly fueled by American stock investors flooding into gold-ETF shares, aggressively buying GLD and IAU. When those are purchased at faster rates than gold itself, their managers shunt excess demand into underlying gold bullion.

Gold’s 42.7% and 40.0% uplegs four years ago were driven by GLD+IAU holdings soaring 30.4% or 314.2 metric tons and 35.3% or 460.5t. But today’s next monster gold upleg is wildly-different, seeing effectively zero demand from American stock investors buying gold ETFs. As gold blasted 53.1% higher over 12.9 months into late October 2024, unbelievably GLD+IAU holdings actually somehow shrunk 0.4% or 5.1t!

Captivated by this euphoric AI stock bubble, American stock investors couldn’t have cared less about gold over this past year or so. That is utterly-unprecedented in this modern gold-ETF era. Gold blasted higher because Chinese investors, central banks, and Indians flooding into jewelry took the gold-buying baton from American stock investors. That way-more-diversified global demand has left gold much-more resilient.

Case-in-point was gold’s massive record breakout surge into mid-April. In what later proved the first half of this monster upleg, gold soared 31.2% in just 6.4 months. That stretched it all the way up to 1.188x its 200dma, even more extremely-overbought than in late October! Those were the highest rGold levels witnessed in 3.7 years! After the last time gold was so overbought in early August 2020, it corrected hard.

Gold plunged 18.5% over the next 7.0 months, challenging 20%+ territory heralding a new bear! In mid-April I analyzed gold’s overboughtness then in another essay. A sharp selloff was probable then too, but I concluded “even after rallying so far so fast, this powerful gold upleg still looks to have lots of room to run. … American stock investors who drive monster gold uplegs haven’t even started chasing this momentum yet.”

While gold would’ve been fully justified to correct 10%+, instead it merely suffered a fast-but-moderate 5.7% pullback into early June. That climaxed in a scary 3.6% daily plunge, after a huge upside surprise in monthly US jobs sparked frenzied gold-futures selling on lower Fed-rate-cut odds! Then instead of that pullback cascading, gold started drifting sideways consolidating high. That was an impressive show of strength.

The normal way for extreme overboughtness to be worked off is through major selloffs. As prices fall, popular greed is eradicated and overextended technicals mean revert and normalize. But this essential rebalancing process can happen another way, albeit more slowly. Rather than selling off, prices can just grind giving traders time to digest and accept new higher levels. Trailing 200dmas gradually catch up.

Big global demand enabled gold to pull back then consolidate high rather than correcting this past spring. And demand has generally remained robust-to-strong according to the World Gold Council. It publishes the best-available global gold fundamental data quarterly in its excellent Gold Demand Trends reports. Those break out Chinese-consumer, central-bank, and Indian-consumer demand separately each quarter.

Those consumer categories include both investment and jewelry buying. In Q1, Q2, and Q3 this year, over in China that clocked in at 308.9t, 174.3t, and 173.4t. While Q1 was much larger, there was no slowdown from Q2 to Q3. Identifiable central-bank demand reported by them was similar at 305.2t, 202.2t, and 186.2t in these last three quarters. But Indian demand did the opposite, running 139.0t, 149.7t, and 248.3t.

Last quarter’s massive surge in Indian gold demand flared after that country slashed its gold import taxes from 15% to 6%, effectively making gold about 9% cheaper there! That was done in late July to boost India’s huge gold-jewelry industry. If strong global demand could limit extremely-overbought gold to just pulling back then consolidating high six months ago, why not again? That’s why I expected “a larger pullback”.

Gold’s overdue selloff started several trading days before elections with a 1.4% drop on Halloween. But that really accelerated the day after Election Day, when Trump’s decisive victory was already apparent. On November 6th gold plunged 3.0%, its worst day since that early-June jobs-upside-surprise plunge during gold’s last pullback out of extremely-overbought levels. That post-election plummet freaked-out traders.

Gold dropped violently because the US dollar soared on expectations for a slower Fed-rate-cut trajectory under Trump, unleashing big gold-futures selling. There were all kinds of worries gold would follow its bearish script after Trump’s last victory eight years earlier. But as I analyzed in a gold-after-Trump-wins essay just last week, 2024’s post-election gold-and-related market action is playing out far differently from 2016’s.

I won’t rehash all that here, but consider the key comparisons. The middle of this week is exactly one month after elections. Since Election Day 2024, gold is down 3.4%. But apathetic American stock investors with virtually no gold exposure haven’t been fleeing, GLD+IAU holdings merely edged 0.1% or 1.6t lower in that span! 2016’s post-election action played out way differently with a new Fed-rate-hike cycle imminent.

In the same 20 trading days after Election Day, back then gold had fallen 8.1% on a large 10.0% or 118.3t draw in GLD+IAU holdings! American stock investors were fleeing, assuming Fed rate hikes would be bearish for gold. That was ironic, as historically gold has actually thrived in rate-hike cycles! But in the markets, perception influencing trading behavior can become reality. Post-election-2024 is nothing like that.

My late-September prediction of “an imminent big-and-sharp gold selloff” around “9%ish” later proved correct. Gold’s post-election selling continued into November 15th, extending its total pullback to 8.0% over 12 trading days. Again the last rebalancing selloff out of extremely-overbought conditions into early June had run 5.7% over 13 trading days. The faster any selloff regardless of size, the more sentiment shifts.

Gold bullishness and popular greed just collapsed in the couple weeks after elections. Traders were convinced Trump’s pro-tax-cuts and pro-tariffs policies would prove inflationary, and thus bullish for the US dollar. And a stronger dollar often spawns gold-futures selling, driving gold lower. Inflation eroding any currency’s purchasing power is bearish for it historically, but traders only cared how the Fed could react.

Resurgent inflation per headline reports would make top Fed officials more hesitant to keep cutting rates, moderating and slowing their federal-funds-rate trajectory. That would leave yields in dollar-denominated bonds higher for longer, upping dollar attractiveness versus major competing currencies. And a rallying US dollar would likely spawn more gold-futures selling. But like last spring, gold soon defied bearish headwinds.

On November 15th after gold swiftly plunged 8.0%, rGold collapsed to an 8.5-month low of 1.071x. Gold hadn’t been merely stretched 7.1% above its baseline 200dma since March dawned, when it just started soaring! And this latest bout of extreme overboughtness was worked off more than back in early June, when rGold bottomed at 1.096x. Sentiment was quickly being rebalanced as gold’s technicals normalized.

While durable selloff bottomings aren’t known in real-time, gold started bouncing blasting 1.9% higher on November 18th. The USDX sliding 0.5% certainly contributed. But the dollar soon resumed rallying, yet gold kept rebounding. Over the next week including that first surge, gold powered up 5.7% despite the USDX climbing another 0.7% in that span to a 24.1-month high! Gold’s monster upleg looked alive and well.

No one knows if gold’s latest selloff is over, this post-election pullback could still deepen and even roll over into correction territory slaying this upleg. But as long as gold stays within 10% of its late-October interim high which means over $2,507, gold’s enormous upleg remains intact. Global demand must still be strong since gold has simply pulled back again then started consolidating high again, just like last spring.

There are plenty of bullish arguments for gold, but the strongest is the fact American stock investors have yet to really start chasing this monster upleg. Sooner or later their infatuation with this AI stock bubble will wane enough for them to notice gold, and they will flood into GLD and IAU shares to chase its big gains and strong upside momentum. Gold’s last two monster uplegs averaged huge 32.9% or 387.4t builds!

Again today’s is only running -0.4% and -5.1t so far despite gold blasting 53.1% higher! So investors still have room to do huge buying. Midweek the total value of GLD+IAU gold-bullion holdings ran just $107.9b, a trivial 0.2% of the collective market capitalization of all S&P 500 companies! American stock investors effectively have zero allocations in gold, crazy considering its gains and centuries-old portfolio-diversifier role.

Along with extreme overboughtness, speculators’ excessive gold-futures longs was the other reason I warned gold’s selloff risk was high in early October. Great progress has been made on that front too. Since late September’s near-record 441.0k peak, total spec longs have collapsed back down to 350.0k as of the latest data. In just nine weeks they plummeted from 100% up into their gold-upleg trading range to 52%!

It’s pretty amazing to see a big-and-fast pullback do so much rebalancing work in such a short period of time. And if gold consolidates high here again like after that spring pullback, sentiment and technicals will continue mean-reverting at a slower pace. Given all that progress, there’s no reason gold’s monster upleg can’t grow even larger in coming months with strong winter-rally seasonals acting like stiff tailwinds.

Speculators and investors can leverage gold’s likely upside in fundamentally-superior mid-tier and junior gold miners. We’ve been aggressively adding new trades in both our subscription newsletters in recent weeks. Before gold’s overdue selloff, we had ratcheted up our trailing-stop-loss percentages to preserve more of our big gains. After those were realized in gold’s selloff, we’re redeploying for its next rally.

The mid-tiers and juniors are earning money hand-over-fist with these high prevailing gold prices, recently reporting their best quarterly results ever! The smaller gold miners continue to grow production far faster than their larger peers, and are achieving lower mining costs driving fatter profitability. Gold stocks have been lagging gold’s monster upleg, so they remain really undervalued with massive catch-up rallying coming.

The bottom line is gold’s monster upleg remains alive and well. With extremely-overbought technicals and excessively-bullish speculator gold-futures positioning, gold had been overdue for a selloff. While it started before Election Day, Trump winning catalyzed it. Traders figured that meant the Fed’s rate-cut trajectory had really moderated, resulting in a stronger US dollar which triggered big gold-futures selling.

While gold’s selloff proved big-and-fast, it bounced hard after a larger pullback. As long as gold doesn’t roll over into 10%+ correction territory, gold’s enormous upleg remains intact. Yet that post-election selling still proved intense-enough to work off most overboughtness and shake loose big gold-futures dumping. That leave’s gold’s near-term outlook bullish, especially if American stock investors finally start returning.

(By Adam Hamilton)

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