Crazy-Overbought Gold!

Gold just soared to crazy-overbought levels, among its most-extreme in modern history!  Though still nowhere near shooting parabolic, such exceedingly-stretched technicals dramatically up the odds gold is due for a rebalancing selloff.  That will likely be correction-grade, though precedent shows a quick bear is possible.  Despite this probable cyclical-bull topping, gold’s relatively-small secular bull remains alive and well.

Gold is having a hell of a year, blasting 30.4% higher in 2025 as of this Monday!  That outperformance is even more impressive compared to the S&P 500 and bitcoin being down 12.3% and 6.8% year-to-date in that same span.  Gold has achieved 24 new record closes so far in 2025, and its big-and-fast gains are winning many converts.  Speculators and investors alike have grown much-more-bullish on this leading asset.

Even more remarkable, gold’s recent advance is just part of an epic monster upleg.  In the 18.5 months since early October 2023, gold has rocketed 88.0% higher!  That’s a mighty cyclical bull which start at 20% gains, but incredibly also a single upleg suffering zero 10%+ corrections.  As this seemed like one of gold’s strongest bull runs ever, I had to know how it stacked up to precedent which required some research.

Gold’s entire modern history extends back to 1971, as that August US president Richard Nixon severed the dollar’s gold standard.  So I built a spreadsheet to analyze all daily gold data going back to January 1971, a 54.3-year span with 13,695 trading days.  I wrote formulas to collate all 10%+ closing gold moves over that half-century-plus timeframe.  The results were certainly interesting, illuminating today’s situation.

Moves were defined as uplegs if gold rallied between 10% to 20%, with cyclical bulls starting at that latter threshold.  Corrections were 10%-to-20% selloffs, with anything bigger being cyclical bears.  Gold has seen 83 total 10%+ moves since early 1971, 42 bulls or uplegs and 41 bears or corrections.  In addition to their size and duration, I also looked at how overextended gold was when each 10%+ move climaxed.

Absolute price levels really don’t matter much in markets, far more important is how fast prices moved to get where they are.  Gold averaged near $41 in 1971, when an upleg very similar to today’s powered way higher.  It catapulted gold up 86.5% in 18.8 months, nearly identical to today’s 88.0% in 18.5 months!  Yet in 2024 which hosted most of today’s monster, gold averaged $2,391.  Moves’ speeds are way more relevant.

There are many ways to quantify how far and fast gold moves.  After a quarter-century-plus of actively trading gold stocks and gold with much success, my favorite speed measure is a simple one.  I call it Relative Gold or rGold, which simply divides gold’s closes by their trailing 200-day moving averages.  200dmas are ideal price baselines, gradually evolving to reflect changing gold levels rather than being static.

This rGold construct effectively flattens gold’s 200dma to horizontal and renders all prices in constant-percentage terms that are perfectly comparable over any timespans including decades.  Charted over time, rGold tends to form horizontal trading ranges that are incredibly useful to game major toppings and bottomings.  I’ve found defining rGold ranges using the last five calendar years of data very effective.

When gold surges too far too fast relative to its own precedent, it grows increasingly overbought.  Around where such surges typically fail is the top of rGold’s trading range, where extreme overboughtness starts.  That is running 1.15x+ now, when gold stretches more than 15% above its 200dma.  Remarkably this monster gold upleg has already spent plenty of time in this rarefied territory while eluding any corrections!

This Gold Relativity chart superimposes gold and its key technicals over rGold during these past several years or so.  The rGold multiple is rendered in red, revealing the constant-percentage distance gold has advanced above its 200dma.  Gold already soared into extreme overboughtness in both mid-April 2024 and late October 2024 with little consequence.  But its latest foray is next-level extraordinarily-overbought!

A year ago in mid-April, gold rocketed up to 1.188x its 200dma.  I wrote an essay at the time about that extreme overboughtness, “warning of high risks for a sharp selloff.  But even after rallying so far so fast, this powerful gold upleg still looks to have lots of room to run.”  Gold hadn’t been that overbought since mid-August 2020, soon after its last 40%+ monster upleg peaked.  So a rebalancing selloff was highly-probable.

Gold indeed fell soon after, but merely by 4.0% which was just a minor pullback.  Five weeks later in mid-May, gold had rebounded back to 1.178x its 200dma!  This gold upleg was already so darned strong that it overcame upleg-slaying levels of overboughtness.  Global central banks were the lead buyers, which aren’t price-sensitive.  They had taken the helm from American stock investors and gold-futures speculators.

Selloffs aren’t the only way to bleed overboughtness, which can be accomplished much more slowly with high consolidations.  Such sideways drifts after big surges give time for traders to digest new higher prices, and baseline 200dmas to catch up a bit.  Gold consolidated high last spring, moderating overboughtness back under that 1.15x+ extreme threshold.  Then gold resumed surging heading into US elections.

By late October gold had soared back up to 18.3% above its 200dma, again foraying deep into extreme-overbought territory.  I wrote another essay heading into that warning about gold’s high selloff risk.  That didn’t mean its bull run had to give up its ghost, but simply overextended technicals and sentiment needed some rebalancing.  Gold did soon retreat, but that selloff only climaxed at an 8.0% pullback in mid-November.

So it’s important to realize today’s monster gold upleg has already proven remarkably resilient to extreme overboughtness that has staked past uplegs!  Again that’s because much of gold’s rally-fueling marginal demand has come from foreign buyers including central banks, Chinese investors, and Indian jewelry purchasers.  If you need to get up to speed on that, my final essay in 2024 detailed gold’s remarkable year.

With gold pretty much ignoring 1.188x and 1.183x overboughtness last year, it wasn’t too concerning when it surged back up to 1.186x relative on April 10th.  It didn’t matter that gold closed at another new record $3,172, just how fast it got there.  For reference at 1.188x in mid-April 2024 gold was at $2,388, then $2,786 at 1.183x in late October.  But gold’s sharp surge in these last couple weeks really pushed limits.

On April 11th, 16th, and 21st which was this Monday, gold blasted up 2.0%, 3.2%, and 3.0% hitting new record closes each day.  Those $3,234, $3,334, and $3,421 closes stretched a whopping 20.8%, 23.9%, and 26.6% above gold’s 200dma!  That latest 1.266x relative early this week was the most-overbought gold has been in fully 13.7 years!  It was also above August 2020’s 1.260x which slayed gold’s last monster upleg.

The more overbought any price gets, the greater the odds for an imminent big-and-fast selloff.  Those are necessary to normalize both overextended technicals and excessive greed among traders.  The risk of a sharper gold selloff is way higher 26.6% above its 200dma than it was at 18.8% or 18.3%.  Traders have to realize that and prepare accordingly, girding themselves psychologically and protecting their capital.

And this particular extreme-overboughtness bout is even riskier than it ought to be due to gold-trading dynamics.  American gold-futures speculators dominate short-term gold price action, mainly because of the extreme leverage inherent in that realm.  Now they are only required to put up $15,000 in cash for each 100-ounce gold-futures contract they trade, which controlled $329,400 worth of gold midweek!

That equates to extreme maximum leverage of 22.0x, giving each dollar traded in gold futures up to 22x the gold-price impact of a dollar traded outright!  Extreme leverage means extreme risks, so gold-futures specs can’t afford to be wrong for long.  At 22x, a mere 4.5% gold move against their bets annihilates 100% of their capital risked!  So they can only survive operating on myopic ultra-short-term time horizons.

They can’t care how big today’s secular gold bull could grow, only about what gold will do in coming hours, days, or maybe weeks on the outside.  These gold-futures guys usually watch the US Dollar Index for their primary trading cues, doing the opposite.  The US dollar has fallen hard on global-trade-war fears over Trump’s big-tariffs gambit.  The dollar plunging has helped fuel gold’s big up days in the last couple weeks.

Gold has soared on five of them, averaging massive 2.9% daily gains!  In four of those five starting on April 10th, the USDX has plunged averaging huge-for-it 1.2% daily losses.  That has collapsed the rUSDX to just 0.940x, well into extreme-oversold territory.  Way down at 94% of its 200dma, the dollar is due for a big-and-fast mean-reversion rally.  That will likely unleash heavy gold-futures selling hammering gold.

The massive foreign gold demand largely fueling this monster gold upleg could remain strong enough to force another high consolidation instead of a selloff.  Gold may get lucky again like the first two times it hit extreme overboughtness in this powerful run.  But make no mistake, the probabilities of a big-and-fast selloff are now higher by far than they’ve yet been in this upleg!  My historical gold study confirmed that.

Even soaring 88.0% at best in 18.5 months so far, today’s epic monster upleg or cyclical bull merely ranks as sixth out of all 42 of gold’s 10%+ moves higher since 1971.  Not surprisingly the top four all came in the 1970s, with enormous 99%-to-128% gains over an average of just 5.9 months each!  Coming off the US dollar’s gold standard was a unique time in history, not very comparable to today for countless reasons.

Gold’s fifth-largest cyclical bull is much more relevant, a 92.3% monster over a leisurely 23.9 months that crested in May 2006.  That peaked with an rGold read of 1.389x, way higher than today’s!  Excluding today’s in-progress bull run, the top-10 cyclical gold bulls topped at a lofty average 1.504x.  So we have nothing to worry about, right?  5 of those 10 were in the 1970s, which were so different from all behavior since.

Making an adjusted-top-10 gold-bull list simply excluding those wild 1970s ones and today’s, the average upleg-slaying rGold topping level falls to 1.265x.  That’s right where gold was stretched to this Monday!  And the rGold average at the ends of all 41 of those 10%+ gold rallies including the 1970s monsters ran 1.234x.  Gold is truly in extraordinarily-overbought rarefied territory way up here, which never lasts for long.

In this entire comprehensive gold dataset since 1971, gold has only closed above 1.26x relative on 3.3% of all trading days.  But boot out that once-in-a-currency’s-history 1970s to restrict that from 1981 onwards, and that drops to 0.5% of all trading days.  From 1991 on, that percentage stays the same at 0.5%.  Then it actually recovers to 0.7% since 2001, then ominously collapses to just 0.1% between 2011 to today!

That last span is gold’s latest 14.3 years of history, a very-long secular sample.  Out of those exactly 3,600 trading days since January 2011, gold has closed 26%+ above its 200dma on just 3 including this Monday!  Gold has just rocketed to ultra-rare exceedingly-overbought levels, which recent decades have shown is too far too fast to be sustainable.  Again big-and-sharp selloffs are super-likely after such extremes.

Gold’s half-century-plus history offers insights into how big this next one could snowball and how long it could persist.  After those five cyclical gold bulls bigger than today’s including all the 1970s ones, gold plunged an average of 26.3% in the subsequent 2.5 months.  If Monday’s $3,421 gold close capped this latest epic monster run, a similar quick-bear rebalancing selloff would crush gold all the way back down to $2,521!

Boy that would hurt, especially in gold stocks which tend to amplify material gold moves by 2x to 3x!  But that pucker factor is likely overstated.  Since the 1970s were so unique and wild, we should look at the subsequent selloffs after the top-10 cyclical gold bulls excluding those and today’s.  Those bull runs averaged fantastic 58.0% gains over 13.9 months, again cresting at average rGold levels of 1.265x just like today.

The average rebalancing corrections after those gold surges were much milder at 15.5% over a fast 1.9 months!  Assuming today’s monster gold upleg has topped, that implies a more-palatable downside target near $2,891.  Interestingly a 1.9-month timeframe from here would leave gold bottoming in late June near its usual summer-doldrums major seasonal low.  Those ten gold bottoms averaged 1.024x rGold reads.

One big silver lining to gold’s current extraordinary overboughtness is this metal is nowhere near being in a popular speculative mania.  A good rule of thumb for recognizing such dangerous bubbles in real-time is a price more than doubling in three months or less.  Gold’s biggest cyclical bull in modern history was its most famous still, skyrocketing 127.9% in just 2.6 months into January 1980!  Today is nothing like that.

While gold is getting pretty hot and greedy today, it has merely rallied 24.8% over these past three months leading into Monday’s latest interim high.  So there’s no bubble to burst, thus little threat of a secular bear in coming years.  Gold’s total secular bull including cyclical bulls and bears started in mid-December 2015, and has only climbed 225.5% at best over the 9.4 years since!  That’s still on the small side for gold.

Between January 1971 to January 1980, gold skyrocketed 2,154.6% higher climaxing in that bubble!  That was actually two secular bulls, a 418.6% one into December 1974 then a second 731.7% one into January 1980.  From April 2001 to March 2008, a secular gold bull powered 292.7% higher.  That was prematurely interrupted by late 2008’s stock panic.  Without that, that secular bull would’ve grown way bigger.

Between April 2001 to August 2011, gold soared 640.1%!  So truly today’s 225.5% is nothing special yet.  There are many bullish fundamental arguments for gold continuing much higher from here, including American stock investors finally starting to chase it and gold being the best global-trade-war refuge.  I’d be surprised if gold isn’t higher than here by year-end, odds are this smaller secular bull has a long way to run yet.

But gold’s crazy-overboughtness argues a big-and-fast selloff is highly-probable between now and then.  It will likely be a 10%+ correction but could cascade into a quick 20%+ cyclical bear.  Preparing for that is no big deal.  Long positions can be pared, but they can also be hedged with gold put options instead.  I prefer doing that rather than selling in case gold somehow keeps soaring to more-popular-mania-like heights.

Trailing stop losses on existing gold and gold-stock positions can also be tightened in anticipation of a healthy rebalancing selloff.  That will lock in more unrealized gains when gold rolls over, but keep traders deployed as long as possible if that selloff tarries.  We both tightened stops on our open gold-stock trades and added gold puts in our weekly subscription newsletter this Tuesday, which is only prudent given this situation.

And rather than fearing inevitable selloffs after strong bull runs, speculators and investors alike should embrace them.  They serve to rebalance and normalize both overextended technicals and greedy sentiment, prolonging a secular gold bull’s lifespan and boosting its ultimate potential gains.  And those periodic selloffs also offer the best mid-gold-bull buying opportunities in both the metal and its miners’ stocks.

Extreme gold overboughtness is when traders need to start doing their homework, researching the best fundamentally-superior gold stocks to buy after the subsequent selloff largely runs its course.  This is easier to do when gold and excitement are high, revealing which gold stocks are hot and in-demand.  Making a list of well-researched buying candidates now helps traders seize the coming short-lived buying opportunities.

Successful trading demands always staying informed on markets, to understand opportunities as they arise.  We can help!  For decades we’ve published popular weekly and monthly newsletters focused on contrarian speculation and investment.  They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks.

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The bottom line is gold just soared to crazy-overbought levels, some of its most extreme seen in decades!  That greatly ramps the odds a major selloff is imminent, either a big-and-fast correction or maybe a quick bear.  Such serious retreats are necessary to rebalance overextended technicals and greedy sentiment after powerful bull runs.  They are very healthy for secular bulls, extending their longevity and ultimate gains.

Traders can prepare for this highly-likely gold selloff by ratcheting up trailing stop losses and adding put options.  Both allow them to stay deployed as long as possible in case gold powers higher still before inevitably succumbing to gravity.  Mid-secular-bull selloffs are great opportunities, leading to some of the better buying opportunities in the metal and its miners’ stocks.  So traders need to start researching them.

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