Gold's Remarkable Year / Commodities / Gold & Silver 2024

Gold truly enjoyed aremarkable 2024, relentlessly powering higher to many new records.  Gold achieved a rare monster-status upleg,which proved extraordinarily-unusual. Big gains stacked up despite extreme overboughtness, speculators’exceedingly-overextended gold-futures positioning, and American stock investorsnot yet chasing gold’s upside.  Severalsources of major global demand coalesced for the heavy lifting.

For the pastquarter-century, I’ve been in the contrarian-financial-newsletterbusiness.  All day everyday I’m blessedto study the markets, actively trade mostly gold stocks, and share all myresearch and trades with our newsletter subscribers.  Few people in the world have been as deeply-immersedin gold and its miners’ stocks as I have. Coming from this meticulous heavily-studied perspective, 2024 wastotally unique.

One year ago this week,gold was trading around a then-nominal-record $2,075.  Some optimism was building, asin early December 2023 gold had just carved its first record close infully 3.3 years.  Yet at $2,071, thatcertainly wasn’t materially better than early August 2020’s $2,062.  Incidentally gold’s run leading into that wasits last monster-status upleg, soaring to 40%+ gains without any 10%+corrections.

My first 2024 essaypublished back in early January was “Gold’s 2024 Breakout Upleg”.  It pointed out “New records generate bullishfinancial-media coverage putting gold back on investors’ radars.  They’ve always loved chasing winners, andwill pile in to ride gold’s upside momentum.” So I wrote “Withrecord-chasing momentum buying kicking in soon, it’s hard to imagine thiscurrent upleg not at least challenging 25%.”

“If today’s upleg onlymatures to 25%, that would still boost gold way up near $2,275.  There will be many record closes between$2,077 and there, which will greatly boost bullish financial-media goldcoverage and investor interest.”  A yearago $2,250+ gold for the first time ever seemed doable, but hopeful and nowherenear certain.  $2,050ish had been agraveyard in the sky for gold uplegs for several long years.

Indeed gold stalledearly on, drifting 4.2% lower to $1,991 by mid-February.  The problem was American stock investors weren’t piling in to chase gold’s upside momentum, which was necessary to fuelmajor gold uplegs.  While gold was stilla solid 9.4% higher from early-October-2023’s $1,820 upleg-birthing low, thecombined holdings of the dominant GLD and IAU gold ETFs actually fell 3.8% or48.2 metric tons!

These mighty Americangold ETFs are the largest in the world by far, launched way back in November 2004and January 2005.  According to the WorldGold Council’s comprehensive global data, exiting 2023 GLD and IAU togethercommanded 39.6% of all the gold bullion held by all the world’sphysically-backed gold ETFs!  A UK goldETF at merely 6.9% was a distant third. Gold’s fortunes often depended on GLD and IAU.

These dominant goldETFs are a conduit for the vast pools of American stock market capital to sloshinto and out of gold.  When Americanstock investors flood into GLD and IAU shares faster than gold is being bought,their prices threaten to decouple from gold’s to the upside.  So their managers have to issue sufficientnew shares to absorb that excess demand, using the proceeds to buy more goldbullion.

GLD and IAU graduallygrew popular in the late 2000s, and since then gold has rarely achieved a majorupleg over 25% without big capital inflows into them.  And a monster 40%+ gold upleg not driven byhuge GLD+IAU holdings builds seemed impossible. Gold’s last two monster uplegs both crested in 2020, at enormous 42.7%and 40.0% gains.  American stockinvestors piling in overwhelmingly fueled both of them.

During the first beforeMarch 2020’s pandemic-lockdown stock panic, GLD+IAU holdings soared 30.4% or314.2t.  Then in the second blastinghigher out of that extreme-fear event, they skyrocketed a gargantuan 35.3% or460.5t!  Had I known a year ago thatAmerican stock investors would totally ignore gold in 2024, I would’ve been way-less-bullish.  Gold-futures speculators could push ithigher, but their capital is quite finite.

Gold’srecord-momentum-chasing dynamic failed to kick in this year because Americanstock investors were enthralled by the AI stock bubble.  Gold has always been the leading alternativeasset, the ultimate portfolio diversifier. Investors are most open to allocating more capital to gold when stockmarkets are weakening on balance.  But inJanuary and February, the flagship S&P 500 achieved fully 14 record closes!

Yet despite Americanstock investors being missing in action from gold, it rocketed higher in earlyMarch.  On that month’s opening coupletrading days, gold surged with 2.0% and 1.6% gains to new records of $2,083 and$2,115!  Speculators stampeded intogold-futures longs after a top Fed official’s speech seemed to hint at newquantitative-easing bond monetizations possible, which was likelymisinterpreted.

Specs bought anastoundingly-huge 55.0k long contracts that week, the fourth-highest everwitnessed!  In seven trading daysstarting with that speech, gold surged 6.8% to $2,181.  Despite those seven record closes in a row,American stock investors didn’t care.  Inmid-March, GLD+IAU holdings still slumped to a shocking 4.5-year secularlow!  Who needed gold when euphoricAI stocks were rocketing parabolic?

Yet gold kept blastinghigher anyway, achieving twelve more nominal record closes into mid-April wayup at $2,388.  But neither American stockinvestors nor gold-futures speculators were doing any meaningful buying!  With gold’s usual drivers not explaining itsrecord-shattering surge, we had to wait for the World Gold Council’soutstanding quarterly Gold Demand Trends fundamental reports to gain keyinsights.

Released about a monthafter quarter-ends, these GDTs offer the best-available global goldsupply-and-demand data.  Q1’s and Q2’srevealed strong demand from Chinese investors and central banks.  I wrote about this in a mid-April essay on gold’s remarkable breakout.  Straddling March and much of April, this isreadily apparent in this gold chart. Gold’s young upleg had already achieved mighty 31.2% gains by then!

With American stockinvestors refusing to play, gold’s upleg should have fizzled out around 25%gains or $2,275.  But Chinese investorswere flocking to gold because their own markets were collapsing.  From mid-February 2021 to early February2024, the leading US China-stock ETF plummeted 62.9% reflecting a brutalbear market in Chinese stocks.  Manygovernment interventions failed to staunch that bleeding.

While Chinese stockmarkets burned, an ongoing multi-year real-estate bust following a bubbleheaped on the financial pain.  That alongwith China’s laws preventing investors from moving capital offshore left gold afantastic safe-haven alternative. Chinese investors flooded in, fueling frenzied buying resemblingsomething of a popular mania.  Centralbanks were also big gold buyers, partially on momentum-chasing.

Central bankers incharge of allocating reserves are human too, susceptible to the same herd greedand fear all investors face.  But centralbanks also increasingly worried about their hugely-outsized holdings of USdollars.  The dollar was being rapidlydevalued through mind-boggling US-government overspending, as well as beingweaponized geopolitically against Washington’s foes.  So central banks remained major buyers.

The WGC’s data oncentral-bank and Chinese consumer gold buying is interesting.  The Q3’24 GDT is the latest published, withQ4’s a month or so out.  While theseglobal demand sources were strong, they didn’t soar making gold’s 2024even more remarkable.  During the firstthree quarters of this year, central banks reported adding 305.2t, 202.2t, and186.2t.  The five-year quarterly averageending 2023 was 172.1t.

Yet that central-bankbuying totaling 693.5t in the first nine months of 2024 was still down 16.8%YoY from the comparable 2023 span! But realize the WGC can only document reported buying.  Some central banks led by China’s don’t liketo disclose their official gold buying. That tips off traders, who can front run central banks driving up goldprices leaving worse entries.  So centralbanks don’t report all buying.

Chinese consumer demandwas similar, tracking at 308.9t, 174.3t, and 173.4t in the first three quartersof 2024.  That compares to aprior-20-quarter average of 215.9t.  Andduring the first nine months of this year, overall Chinese demand also slumped7.9% YoY to 656.6t.  So though thatremained strong, it certainly didn’t soar to lofty extremes.  The more measured gold buying, the longer itspotential staying power.

Gold’s massive breakoutsurge into mid-April left it exceedingly-overbought.  One way to quantify that is looking at goldrelative to its baseline trailing 200-day moving average.  At $2,388, gold had stretched an extreme18.8% above its 200dma!  That was themost overbought gold had been since August 2020 fully 3.7 years earlier, whenits last monster upleg crested.  Extremeoverboughtness usually portends big selloffs.

When gold rallies toofar too fast, too much popular greed is generated.  Rushing to chase those rapid gains, soon allwilling near-term buyers are fully-deployed. With buying exhausted, sellers take the upper hand forcing sizableselloffs to rebalance sentiment and technicals. Those often cascade to correction-grade 10%+ ones, sometimes challenging20%+ new bears.  Case-in-point was thatAugust-2020 topping.

After similarextremely-overbought levels, gold suffered a major 18.5% correction over thenext 7.0 months!  So in mid-April 2024,gold’s mighty upleg faced high risks of rolling over into a serious 10%+selloff.  Yet remarkably it didn’t.  Sometimes rather than selling off, big pricesurges can be digested by a slower high consolidation.  Prices simply mostly grind sideways longenough to gradually work off greed.

Gold largely driftedinto mid-May, remaining extremely-overbought and even making a couple newrecord closes.  At $2,424 then, gold wasstill stretched 17.8% above its 200dma. The extreme threshold over the last five years starts at 15%+.  While gold did start selling off from there,that culminated in a mere minor 5.7% pullback into early June!  Gold’s major new highs were holding despiteno American stock investors.

Gold resumed rallyingin July and August, achieving another six nominal record closes.  By late August, gold’s upleg had grown to38.7% just shy of monster status.  Yetagain astoundingly in that span, those combined GLD+IAU holdings actuallyfell 4.4% or 55.8t.  Nothing likethat had ever happened before in this modern gold-ETA era, it was trulyremarkable!  Another big source of globaldemand had ramped up.

After the Chinese,Indians are the second-largest gold consumers. As gold has always had a venerated place in Indian culture, they arestudied and shrewd buyers.  Unlike mostinvestors who prefer to buy high and chase upside momentum, Indians lovebargains.  Despite gold’s record prices,they got some major artificial price cuts. In late July, India’s government slashed its gold-bullion import taxes from15% to just 6%!

That was done to boostthat country’s important domestic gold-jewelry industry.  After those taxes stayed above 10% for morethan a decade, their biggest cut ever motivated Indians to buy.  Per that latest WGC GDT data, Indian consumergold demand in Q1, Q2, and Q3 this year ran 139.0t, 149.7t, and 248.3t.  That latest-reported quarter surged way abovethe prior five years’ quarterly average of 173.5t on cheaper gold.

During 2024’s firstnine months, total Indian gold demand climbed 8.5% YoY to 537.0t.  That compares to again 656.6t from Chineseconsumers and 693.5t from central banks. So the identifiable big global gold demand fueling gold’s monster uplegthis year was fairly-evenly-split. Gold-futures speculators did the equivalent of 307.7t of buying in2024’s first nine months, while GLD+IAU holdings somehow fell 35.4t!

No thanks to apatheticAmerican stock investors, gold continued powering higher in September seeinganother eight record closes.  Mid-monththat upleg achieved 40%+ monster status, and a couple weeks later gold’s gainsgrew to 46.8% at $2,671.  But anotherdangerous milestone had been reached, so I warned about gold’s high selloff risks.  Extreme overboughtness was part of that, withgold 17.3% over its 200dma.

But the bigger worrywas speculators’ gold-futures longs had soared to their fifth-highest levelsever way up at 441.0k contracts! 415k is recent years’ secular resistance, around where thesehyper-leveraged traders exhaust their available capital firepower for buyinggold futures.  By all rights, near-recordspec longs and extreme overboughtness should’ve pummeled gold into an imminentupleg-slaying correction.

Remarkably that notonly didn’t come to pass, but gold resumed rallying after a trivial 2.4%dip.  Then it forged even higher intorecord territory in late October, again stretching an extreme 18.3% above its200dma.  That extended gold’s totalmonster upleg without a single 10%+ correction to enormous 53.1% gains over 12.9 months!  Astoundingly GLD+IAUholdings still slipped 0.4% or 5.1t during that entire span.

Had someone predictedsomething like that a year ago, I would’ve scoffed saying it wasimpossible.  A giant monster gold uplegdefying extreme overboughtness and near-record spec gold-futures longs with virtuallyno participation by American stock investors? No freaking way, when pigs fly! Yet here we are.  In my 25 yearsstudying markets and gold all day everyday, I’ve never witnessed anythingremotely like this.

Gold was certainlyoverdue for another larger rebalancing selloff in late October, which gotunderway before the elections.  Trump’sdecisive victory surprised many, and traders assumed his tax cuts and tariffswould lead top Fed officials to slow their new rate-cutting campaign.  So the US dollar which drives muchgold-futures trading soared, driving some heavy selling in that realm.  I analyzed all this a monthago.

Thus gold sufferedanother selloff into mid-November, clocking in as a larger 8.0% pullback from$2,786 to $2,562.  Gold bounced stronglyout of that latest interim low, leaving it looking like a bottoming.  And since that selloff didn’t cross that 10%+correction threshold, gold’s monster upleg remains alive and well!  It has not yet given up its ghost, and maypower higher still.  That latest pullbackworked off much overboughtness.

Gold plunged from thatextreme 18.3% above its 200dma to just 7.1% over in mid-November, then again toonly 5.4% above after mid-December’s latest Fed decision.  Despite an apparent big hawkish surprise testing gold’s monster upleg,it held strong.  Though gold plunged 1.9%to $2,593 on top Fed officials’ projecting slower rate cuts ahead, it remainedway above correction territory which starts down at $2,507.

So with 2024 winding toa close, gold has soared an awesome 26.9% higher year-to-date.  Though you’d never know it from Americanstock investors, that slightly bested the S&P 500’s parallel 26.6% bubblegains!  Gold achieved 41 nominalrecord closes this year, and is revaluing to much-higher prevailing pricelevels.  Gold’s price action has trulybeen remarkable in 2024, utterly unprecedented in several key ways.

While a correction isinevitable sooner or later, gold’s outlook remains quite-bullish.  The main reason is American stock investors haveyet to start chasing this monster gold upleg.  They control vast pools of capital dwarfingall others in the world.  Again gold’slast two monster uplegs cresting in 2020 averaged 32.9% or 387.4t GLD+IAUholdings builds!  Since today’s upleg wasborn, those are running -0.9% and -11.4t.

If American stockinvestors do enough differential GLD-and-IAU share buying in 2025 to forceanother 400t+ build, gold is heading much higher!  And with their capital allocated to gold effectivelyzero, that’s not a tall order. There’s actually a simple proxy for this, dividing the total value ofGLD+IAU’s gold bullion by the total market capitalization of all the S&P500 stocks.  The latter is running near $54,131bmidweek.

Yet the 1,266.5t ofgold held by these dominant gold ETFs is worth less than $107b, implyingAmerican stock investors are less than 0.2% allocated in gold!  That will likely change as this AI bubbleinevitably bursts, and investors remember the wisdom of prudently diversifyingtheir tech-stock-heavy portfolios.  Ifthey go to 0.5% or 1% or 2% gold, this gold bull will power way higher!  Historically 5% to 10% was normal.

Also bullish for gold,the US dollar’s bear market will almost certainly resume in 2025.  The benchmark US Dollar Index has beenblasting higher in recent months in a powerful bear-market rally, fueled byexpectations of slower Fed rate cuts.  Butthat outlook will change with major economic data, eventually reversing thedollar lower which will spawn gold-futures buying.  Geopolitics ought to boost gold as well.

If Trump’s hugeproposed tariffs are implemented, other countries including China willretaliate financially.  That will likelyinclude dumping US Treasuries and US dollars, and some of those proceeds willflow into gold further eroding the dollar. The higher gold climbs, the more it will tarnish the US dollar’sinternational reputation and pressure Washington into slowing its insanedrunken-sailor-levels of government spending.

With gold almostcertainly revaluing to much-higher levels than past years indefinitely,the gold stocks have massive catch-up rallying left to do.  They are big bargains, lagging gold’smonster upleg this year.  Thefundamentally-superior smaller mid-tier and junior goldminers we specialize in trading are enjoying enormous high-double-digit andeven triple-digit year-over-year earnings growth, to their fattest profitsever!

Absurdly the benchmarkGDX gold-stock ETF is only up 10.8% year-to-date, far behind gold’s 26.9%.  Usually the major gold stocks dominating GDXamplify material gold moves by 2x to 3x. That implies 106% to 159% GDX gains in a 53% gold upleg!  As of mid-December, we’ve realized 79gold-stock trades in our newsletters this year averaging fantastic 45.4%annualized gains!  And far-biggergold-stock upside is likely.

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The bottom line is goldjust enjoyed a truly-remarkable year.  Goldpowered higher in a massive breakout, achieving a rare monster upleg withdozens of new record closes.  Incrediblythat was despite American stock investors enthralled by the AI stock bubbletotally sitting out, multiple bouts of dangerous extreme overboughtness,exceedingly-overextended near-record spec gold-futures longs, and a powerfuldollar rally!

While any one of thosecould have easily scuttled this gold upleg early or slayed it later, they didn’t.  Big global demand from Chinese investors,central banks, and Indian jewelry buyers overcame everything.  While that ought to remain robust in 2025,American stock investors are still likely to return which would drive gold muchhigher.  Miners’ stocks should prove thebiggest beneficiaries as they normalize with their metal.

Adam Hamilton, CPA

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