Gold Breaking Out Again

Gold is breaking out again, forging higher into new record territory!  Gold’s monster upleg over this past year or so has proven remarkable, overcoming plenty of serious challenges.  Yet most investors remain oblivious, hypnotized by the AI stock bubble.  So gold has been widely-overlooked, with American stock investors’ allocations remaining near zero.  Gold and especially its miners’ stocks still have great upside potential.

Generation-X investors probably remember the late comedian Rodney Dangerfield, whose catchphrase “I get no respect!” become famous in the 1980s.  Gold reminds me of him, as it has long got no respect.  Last year gold powered 27.2% higher, handily besting the benchmark S&P 500 stock index’s big 23.3% gains!  And during that mighty 2024 run, gold achieved no fewer than 41 new nominal record closes!

From early October 2023 to late October 2024, gold soared an epic 53.1% higher in a rare monster-status upleg exceeding 40%!  With stellar accomplishments like this, gold should’ve been one of 2024’s dominant financial-news topics fueling intense trader interest.  While there was some reporting, for the most part this powerful bull market has been ignored.  NVIDIA, AI, mega-cap techs, and bitcoin overshadowed gold.

I’m not throwing shade on them, their spectacular performances made them worthy of adoration.  But gold deserves to share in that apex-trade limelight.  Hopefully this incongruity will improve with gold breaking out again.  Its last nominal record close was $2,786 in late October.  Last Friday gold regained $2,770, just 0.6% shy of new-record territory.  And as I pen this essay midday Thursday, gold is trading at $2,795!

Technically any close over $2,786 is an upside breakout.  But to help screen out challenges of new highs that fail such as double-toppings, I’ve long preferred to look for decisive breakouts.  That’s defined as a close 1%+ above the previous peak, which would be $2,814 for gold.  Strong upside momentum argues that will be surpassed soon, proving gold’s monster upleg is very much alive and well and still mounting.

These strong technicals alone are impressive, but gold’s dramatic revaluation higher over this past year is truly remarkable because of upleg-slaying challenges overcome.  There were several big ones in 2024, and gold’s recovery from its recent selloff is another.  Investors need to understand these to appreciate what a juggernaut gold has become.  They are annotated in red on this chart showcasing gold’s monster upleg.

In late 2023, gold was definitely the Rodney Dangerfield of asset classes.  For several long years, $2,050 had proven a graveyard in the sky.  The seemingly-insurmountable resistance there repelled sharp gold advances in August 2020, March 2022, and April 2023.  Gold had long been left-for-dead, drowning in apathy.  Then suddenly in early December 2023, gold finally surged to its first record close seen in 3.3 years!

Still ignored, $2,071 didn’t make any waves then.  But as I analyzed in an essay that week, gold-record momentum can feed on itself.  More record closes drive more financial-media coverage, broadening the awareness of rallying assets among traders.  That motivates them to increasingly chase those gains, which their capital inflows accelerate.  Such powerfully-bullish virtuous circles can erupt across the markets.

But gold’s initial one looked to be fizzling, with it remaining so deeply out of favor.  After one more record in late December, gold slumped 4.2% into mid-February 2024.  Back down at $1,991, that breakout was crumbling.  The main reason was American stock investors weren’t buying gold, which is evident in the bullion holdings of the world-dominating GLD and IAU gold ETFs.  Those slumped 3.9% during that span.

Birthed back in November 2004 and January 2005, GLD and IAU forever changed gold capital flows.  They act as easy, efficient conduits for vast pools of American stock-market capital to slosh into and out of gold.  When GLD+IAU holdings are climbing, their shares are being bought faster than gold accelerating its gains.  Differential GLD+IAU-share demand forces these ETFs’ managers to issue new shares to absorb it.

The proceeds are then immediately plowed into buying more gold bullion, creating more physical gold demand.  In this entire modern gold-ETF era, gold never achieved massive uplegs without sizable-to-big differential buying of GLD-and-IAU shares.  While speculators trading gold futures could use their crazy leverage to bully around gold, big sustainable gains required big capital inflows from American stock investors.

Yet despite them remaining missing in action, gold still rocketed higher in early March.  It surged in hefty 2.0% and 1.6% back-to-back gains to new record closes of $2,083 and $2,115.  Speculators stampeded into gold futures after a top Fed official’s speech seemed to hint that new quantitative-easing bond monetizations were possible.  Though likely misinterpreted, that event shocked gold’s moribund upleg back to life.

Specs’ futures positioning is reported weekly in the famous Commitments of Traders reports.  During that CoT week, they rushed to add an astounding 55.0k gold-futures long contracts!  That proved the fourth-highest on record out of all CoT weeks, unbelievably-extreme!  Because of the extreme leverage inherent in gold-futures trading around 25x, specs punch way above their weights in driving short-term gold action.

That frenzied gold-futures buying fueled an extraordinary streak of seven record gold closes in a row!  Yet incredibly American stock investors enthralled with the AI bubble continued paring their meager portfolio allocations in gold.  Incredibly GLD+IAU holdings sunk to a shocking 4.5-year secular low in early March, a stunning disconnect from gold prices!  Massive gold uplegs have long required differential GLD-and-IAU buying.

That sure wasn’t happening, and that freakishly-huge gold-futures buying quickly burned out.  Yet gold kept on powering higher on balance, despite its two usual primary drivers not contributing much.  Demand coming from elsewhere seized the helm, catapulting gold up to a record $2,388 in mid-April.  Yet surging so far so fast left it exceedingly-overbought, stretching a scary 18.8% above its baseline 200-day moving average!

Gold hadn’t been that overextended since August 2020 3.7 years earlier, right after the peak of its previous monster upleg.  The extreme greed necessary to fuel such big-and-fast gains isn’t sustainable.  It soon sucks in all interested near-term buyers, leaving only sellers which soon drive proportionally-sharp selloffs to rebalance herd sentiment.  After that earlier extreme, gold corrected hard dropping 18.5% over 7.0 months!

Yet remarkably into late April 2024, gold merely pulled back 4.0%.  That was despite little buying from either American stock investors or gold-futures speculators.  That meant robust demand had to be coming from elsewhere in the world.  Soon that was revealed to be Chinese investors and central banks.  Both had good reasons to up their gold allocations, so they had taken the baton from American stock investors.

Chinese stock markets had suffered a brutal secular bear mauling away nearly 2/3rds of their prices!  And that was on top of a devastating multi-year real-estate bust.  Chinese investors aren’t allowed to move capital offshore, so gold was a fantastic safe-haven alternative.  They flooded in with frenetic buying, which at times resembled a popular speculative mania.  The gold stories out of China this past spring were wild.

Central bankers saw gold surging to new records, stoking their fear-of-missing-out and greed.  But they also had important fundamental reasons to diversify their reserves away from their huge and dominant US-dollar holdings.  The US government’s mind-boggling overspending was rapidly devaluing the dollar, and Washington was increasingly weaponizing it geopolitically against its foes.  So central banks bought gold.

Global gold fundamental data is only published quarterly by the World Gold Council, in its fantastic Gold Demand Trends reports.  I was hoping the latest Q4’24 iteration would be released this week, but it wasn’t yet as of midday Thursday.  Still 2024’s earlier Q1, Q2, and Q3 data combined reveal that robust Chinese and central-bank gold buying.  They respectively weighed in at 656.6 and 693.5 metric tons in that span!

Provocatively while large, neither was exceptional.  During those first three quarters of last year, Chinese-investor and central-bank gold buying actually slumped 7.9% and 16.8% year-over-year!  That China demand also remained under its ten-year rolling-three-quarter average of 709.2t, but demand from central banks was 47.6% higher than its own 469.7t!  That helped gold power higher without much GLD+IAU buying.

As more gold nominal records continued falling like dominos in August, gold-futures speculators became more excited aggressively buying again.  A frenzied summer buying spree ultimately catapulted total spec longs to 441.0k contracts in late September, their fifth-highest levels on record!  Because of the crazy risks in gold-futures trading, only a relatively-tiny fraction of traders do it and their capital firepower is quite-limited.

That makes super-high spec longs very bearish for gold.  They not only reveal buying likely to be getting exhausted, but they are legally required to be unwound and closed through proportional selling.  So sharp gold surges fueled by hyper-leveraged gold-futures buying are usually followed by sharp symmetrical plunges.  I wrote a whole essay in early October analyzing this, warning about the high gold selloff risk then.

In addition to extreme spec longs, those fast gold gains had bred exceeding-overboughtness again.  By late October, gold had soared another 18.3% above its baseline 200dma!  That was when gold peaked, after skyrocketing 53.1% over 12.9 months in a monster upleg.  So by all rights, gold should’ve rolled over into an upleg-slaying major 10%+ correction.  American stock investors still ignoring gold bolstered this case.

Astoundingly across that entire monster-upleg span, GLD+IAU holdings actually slipped 0.4% or 5.1t!  This extreme anomaly was radically unprecedented in this modern gold-ETF era.  Gold’s last two monster uplegs with 40%+ gains both crested in 2020.  The first at 42.7% was largely fueled by massive 30.4% or 314.2t GLD+IAU-holdings builds!  Those ballooned to an enormous 35.3% or 460.5t in the second 40.0% one!

Those colossal GLD+IAU-holdings builds averaged 387.4t then, so to see an even-bigger monster gold upleg gallop without any differential gold-ETF buying was amazing.  In addition to Chinese investors and central banks contributing, so did Indian jewelry buyers late last summer.  In late July, India’s government slashed its gold-bullion import taxes from 15% to just 6%!  That was their biggest cut ever witnessed.

Done to boost India’s important domestic gold-jewelry industry, shrewd Indian buyers flocked back to gold with that effective 9% discount.  That drove overall Indian gold demand in 2024’s first three quarters up 8.5% YoY to 537.0t.  All that foreign buying was the only reason gold could defy extreme overboughtness and extreme spec gold-futures longs to soar in a monster upleg with no differential GLD+IAU-share buying.

I’ve never seen anything like gold’s remarkable 2024 action in the quarter-century-plus I’ve been in the financial-newsletter business.  That long stint included watching and studying markets all day every day, intensely researching gold and its drivers, and actively trading gold stocks.  Much surrounding gold’s latest monster upleg was totally unprecedented, which should’ve fueled widespread investor interest in gold.

As if all that wasn’t enough, another phenomenal anomaly arose in recent months since gold peaked.  Rather than correcting hard out of extreme overboughtness, gold merely pulled back 8.0% at worst in mid-November!  That was an amazing show of strength given that setup and specs’ near-record gold-futures longs.  Without a 10%+ correction, gold’s monster upleg of 2024 remained very much alive and well.

After that relatively-mild selloff following such a huge run, gold consolidated high.  Then it resumed rallying in late December after a hawkish FOMC meeting, which usually slam gold.  Top Fed officials slashed their 2025 rate-cut outlook in half to just two 25-basis-point ones.  A higher future federal-funds-rate trajectory is bullish for the US dollar, boosting yields.  And gold-futures specs look to the dollar for trading cues.

So gold usually sells off proportionally on big US-dollar rallies, and there has been an enormous one since late September.  The benchmark US Dollar Index had slumped to a 14.2-month low then, before starting to surge as Trump’s betting-market odds of winning mounted.  Traders assumed his threatened big tariffs would rekindle inflation, forcing the Fed to slow, stop, or even start reversing its recent rate cuts.

Over the next 3.6 months into mid-January 2025, the USDX soared a colossal-for-it 9.4%!  That was the dollar’s biggest rally by far since mid-2022, when the USDX skyrocketed 12.3% on the Fed’s most-violent rate-hike cycle ever.  Catapulting the USDX to an extreme 20.4-year secular high, during that span gold plunged a proportional 12.1% on heavy gold-futures selling.  My essay a couple weeks ago analyzed all this.

So with the dollar blasting 9.4% higher in recent months, gold could’ve easily again fallen symmetrically in this span.  Especially out of those exceedingly-overbought conditions and near-record spec gold-futures longs.  Yet remarkably if not dumbfoundingly, gold merely slipped a trivial 0.0% lower in that timeframe!  It ignored the biggest USDX rally in years, after a monster upleg seeing no American-stock-investor buying.

You can’t make this stuff up, it’s crazy.  Had someone laid out such a thesis for me a year ago, I would’ve scoffed saying no freaking way.  It’s impossible, yet here we are.  Gold is breaking out again after wildly defying the odds and precedent for almost an entire year.  And ironically American stock investors not participating is the most-bullish argument for gold going forward!  They won’t ignore gold’s momentum forever.

At some point likely soon after such a long delay, American stock investors will finally realize what gold is achieving and rush in to chase its big gains.  As of midweek gold remains 51.3% higher than its upleg-birthing low in early October 2023.  Yet GLD+IAU holdings are still down 1.6% or 20.7 metric tons during this span!  They could easily swing back near +400t like in those 2020 monster uplegs as investors finally return.

And why wouldn’t they?  This AI stock bubble that has enthralled them is long-in-the-tooth, overdue to roll over into a bear.  Valuations are deep into dangerous bubble territory, and AI-market-darling NVIDIA’s eye-popping 17.0% crash on Monday reveals how vulnerable those bubble leaders are!  As that bubble inevitably bursts, investors will remember the wisdom of prudent portfolio diversification which gold excels at.

And American stock investors’ gold allocations now are essentially zero after long years of apathy.  Midweek those combined GLD+IAU holdings were worth just $111b.  Yet the total market capitalization of all the S&P 500 stocks was running $54,153b.  That implies American stock investors only have trivial 0.2% gold allocations!  It wouldn’t take major shifts to multiply that, and those inflows would drive gold much higher.

With gold breaking out again, awareness of and interest in its remarkable surge will grow.  That is going to fuel some fear-of-missing-out and momentum-chasing buying, which will feed on itself.  While gold itself is poised for more rallying, its coming gains should be mightily leveraged by gold miners’ stocks.  They were unusually left behind last year, ignored and languishing far behind gold’s monster upleg.

At best the leading GDX gold-stock ETF powered 70.2% higher during gold’s 53.1% upleg.  But that’s way short of its historic leverage range of 2x to 3x, implying 106% to 159% gains in the major gold stocks!  In 2024, GDX only rallied 9.4% to gold’s 27.2%.  That’s unsustainable, especially with gold stocks about to report their best quarter ever!  Smaller fundamentally-superior gold stocks will way outperform the majors.

Actively trading them has always been our specialty at Zeal.  Last year between our two newsletters we realized 84 stock trades, mostly in mid-tier and junior gold miners.  They averaged great annualized realized gains of +43.1%, trouncing the major-dominated GDX’s!  We’ve mostly reloaded our newsletter trading books in recent months, which are full of excellent growing smaller gold miners ready to soar with their metal.

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The bottom line is gold is breaking out again, forging into new record territory.  This past year’s monster gold upleg remains alive and well, despite overcoming plenty of serious challenges.  Those included multiple bouts of extreme overboughtness, near-record spec gold-futures longs, American stock investors enthralled by the AI bubble ignoring gold, and the most-powerful US-dollar surge witnessed in years.

Despite all that, gold still soared and held those huge gains largely on robust foreign demand.  Since American stock investors haven’t even started chasing gold yet, they still have massive room to buy.  That’s almost certainly still coming, especially with the AI bubble ready to burst.  As investors resume diversifying with gold, still-beaten-down gold stocks with their best fundamentals ever are overdue to soar

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