Gold Price Monster Upleg Lives / Commodities / Gold & Silver 2024

Gold’s monster uplegremains alive and well, after weathering a sharp post-election selloff.  One had certainly been due, as gold had justsurged to extremely-overbought levels. The resulting pullback was big and fast, doing much essentialrebalancing work.  Gold’s resiliencedefying some bearish headwinds is a bullish omen.  Despite its massive size, this monster uplegdoesn’t look ready to give up its ghost yet.

I don’t use this“monster” term lightly, reserving it for gold uplegs exceeding 40% gains.  Over a long 12.9-month span from earlyOctober 2023 to late October 2024, gold rocketed a jaw-dropping 53.1%higher!  A year ago gold achieved itsfirst nominal record close in fully 3.3 years.  Since then, awhopping 42 more have been written into the books!  Superlatives don’t overstate the magnitude ofgold’s powerful bull run.

Technically this pastyear’s surge remains an extraordinarily-large upleg within a bigger bullmarket.  Bulls are defined as 20%+ gainsoff major lows.  Within thoseusually-secular uptrends, smaller uplegs and corrections meander.  Uplegs last until they are formally ended by10%+ corrections, which sometimes cascade into 20%+ bear markets slayingbulls.  Sub-10% selloffs within uplegscalled pullbacks don’t kill them.

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

From late October tomid-November 2024, gold suffered an 8.0% selloff at worst which is a largerpullback.  It wasn’t acorrection-grade drop resetting gold’s upleg status.  I had been warning that one was inevitableand looming, first in our weekly subscription newsletter in lateSeptember.  I wrote “Specs’ gold-futurespositioning being excessively-bullish betting on gold upside is actually reallybearish for the yellow metal.”

“This continues toworry 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 Iwrote an entire essay analyzing gold’s high selloff risk.  The reasons were gold wasextremely-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 abit, surging again into late October on momentum buying.  Gold finally crested at $2,786 on October30th, stretching way up to 1.183x its 200-day moving average!  That is extremely-overbought, meaning goldhad surged too far too fast for those price levels to be sustainable based onits own historic precedent.  Dividinggold’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 theright axis, superimposed over rGold in red off the left.  Dividing gold by its 200dma effectivelyflattens that important technical baseline to horizontal at 1.00x.  Then gold’s price action relative to it is revealedin constant-percentage terms.  Gold lookedprecarious before the elections!

Gold soaring 18.3% above its trailing 200dma on October 30th wasexceedingly-rarefied territory.  Howrare?  Over the last decade, gold hasonly closed 18%+ above its 200dma on 0.8% of all trading days.  Seeing gold that overbought is less than a1-in-125 event!  And all pastepisodes seeing such extreme overboughtness marked gold toppings, usually majorones.  Big correction-grade selloffsnormally follow.

So why was I onlyexpecting a “9%ish” pullback?  This monstergold upleg has proven very unusual on multiple fronts.  Gold’s previous two monster uplegs bothpeaking in 2020 were overwhelmingly fueled by American stock investors floodinginto gold-ETF shares, aggressively buying GLD and IAU.  When those are purchased at faster rates thangold 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 314.2metric tons and 35.3% or 460.5t.  But today’snext monster gold upleg is wildly-different, seeing effectively zero demandfrom 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 pastyear or so.  That is utterly-unprecedentedin this modern gold-ETF era.  Goldblasted higher because Chinese investors, central banks, and Indians floodinginto jewelry took the gold-buying baton from American stock investors.  That way-more-diversified global demand hasleft gold much-more resilient.

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

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

While gold would’vebeen fully justified to correct 10%+, instead it merely suffered afast-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-futuresselling on lower Fed-rate-cut odds!  Theninstead of that pullback cascading, gold started drifting sidewaysconsolidating high.  That was animpressive show of strength.

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

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

Those consumercategories include both investment and jewelry buying.  In Q1, Q2, and Q3 this year, over in Chinathat 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 bythem was similar at 305.2t, 202.2t, and 186.2t in these last threequarters.  But Indian demand did theopposite, running 139.0t, 149.7t, and 248.3t.

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

Gold’s overdue selloffstarted several trading days before elections with a 1.4% drop onHalloween.  But that really acceleratedthe day after Election Day, when Trump’s decisive victory was alreadyapparent.  On November 6th gold plunged3.0%, its worst day since that early-June jobs-upside-surprise plunge duringgold’s last pullback out of extremely-overbought levels.  That post-election plummet freaked-outtraders.

Gold dropped violentlybecause the US dollar soared on expectations for a slower Fed-rate-cuttrajectory under Trump, unleashing big gold-futures selling.  There were all kinds of worries gold wouldfollow 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 isplaying out far differently from 2016’s.

I won’t rehash all thathere, but consider the key comparisons. The middle of this week is exactly one month after elections.  Since Election Day 2024, gold is down3.4%.  But apathetic American stockinvestors with virtually no gold exposure haven’t been fleeing, GLD+IAUholdings merely edged 0.1% or 1.6t lower in that span!  2016’s post-election action played out waydifferently with a new Fed-rate-hike cycle imminent.

In the same 20 tradingdays after Election Day, back then gold had fallen 8.1% on a large 10.0% or118.3t draw in GLD+IAU holdings! American stock investors were fleeing, assuming Fed rate hikes would bebearish for gold.  That was ironic, ashistorically gold has actually thrived in rate-hike cycles!  But in the markets, perception influencingtrading behavior can become reality. Post-election-2024 is nothing like that.

My late-Septemberprediction of “an imminent big-and-sharp gold selloff” around “9%ish” laterproved correct.  Gold’s post-electionselling continued into November 15th, extending its total pullback to 8.0% over12 trading days.  Again the last rebalancingselloff out of extremely-overbought conditions into early June had run 5.7%over 13 trading days.  The faster anyselloff regardless of size, the more sentiment shifts.

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

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

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

While durable selloffbottomings aren’t known in real-time, gold started bouncing blasting 1.9%higher on November 18th.  The USDXsliding 0.5% certainly contributed.  Butthe dollar soon resumed rallying, yet gold kept rebounding.  Over the next week including that firstsurge, gold powered up 5.7% despite the USDX climbing another 0.7% in that spanto a 24.1-month high!  Gold’s monsterupleg looked alive and well.

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

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

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

Along with extremeoverboughtness, speculators’ excessive gold-futures longs was the other reasonI warned gold’s selloff riskwas high in early October.  Greatprogress has been made on that front too. Since late September’s near-record 441.0k peak, total spec longs havecollapsed 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 tosee a big-and-fast pullback do so much rebalancing work in such a short periodof time.  And if gold consolidates highhere again like after that spring pullback, sentiment and technicals will continuemean-reverting at a slower pace.  Givenall that progress, there’s no reason gold’s monster upleg can’t grow evenlarger in coming months with strongwinter-rally seasonals acting like stiff tailwinds.

Speculators andinvestors can leverage gold’s likely upside in fundamentally-superior mid-tierand junior gold miners.  We’ve beenaggressively adding new trades in both our subscription newsletters in recentweeks.  Before gold’s overdue selloff, wehad ratcheted up our trailing-stop-loss percentages to preserve more of our biggains.  After those were realized ingold’s selloff, we’re redeploying for its next rally.

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

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The bottom line is gold’s monster upleg remains alive andwell.  With extremely-overboughttechnicals and excessively-bullish speculator gold-futures positioning, goldhad been overdue for a selloff.  While itstarted before Election Day, Trump winning catalyzed it.  Traders figured that meant the Fed’s rate-cuttrajectory had really moderated, resulting in a stronger US dollar whichtriggered big gold-futures selling.

While gold’s selloffproved 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 provedintense-enough to work off most overboughtness and shake loose big gold-futuresdumping.  That leave’s gold’s near-termoutlook bullish, especially if American stock investors finally start returning.

Adam Hamilton, CPA

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