After ripping to an all-time high of $3,500 an ounce last month, gold has finally cooled off – falling to around $3,210.
The catalyst? Easing trade tensions and a stronger U.S. dollar. Investors are starting to shift their focus to upcoming economic data, especially the all-important non-farm payrolls report.
In other words, traders want clarity before they keep pushing gold higher.
But let’s zoom out. Gold’s recent surge wasn’t just another fear trade – it was a loud, chaotic message from global investors: We don’t trust the system right now.
In everyday life, gold is what you buy when you want to be flashy – like jewelry or watches. In investing terms, it’s what you buy when either:
(A) You have deep distrust in the foundations of the global financial system, or
(B) There’s literally nothing else you want to own.
And lately, distrust has gone parabolic.
Global Uncertainty Is Driving Gold Higher – For Now
America is now part of the problem. Between political dysfunction, the Federal Reserve’s shaky credibility, and upheaval in cross-border trade, global capital is pouring into gold.
What economist John Maynard Keynes once called a “barbarous relic” just hit $3,500 per ounce – and it’s up 30% since November. That’s against a 7% drop in the S&P 500.
What started as a fear-based move is now morphing into a full-blown embrace. According to Bank of America, gold has become the most crowded trade among fund managers.
In China, gold demand is off the charts: long positions on the Shanghai Futures Exchange just hit a record, and net inflows into the Shanghai Gold ETF already surpassed the annual record – with only a third of the year gone. Meanwhile in the U.S., call option volume in SPDR Gold Shares (GLD) just hit an all-time high.
But here’s where you should be cautious… Last week, gold traded more than 20% above its 120-day moving average. That’s rare air. Brent Donnelly of Spectra Markets points out that in eight out of nine historical cases, moves this extreme have led to major turning points.
And that’s why I’m preparing for a pullback.
We’ve seen gold miners go vertical – some are up 50%-plus year to date. But if gold drops to $3,100 or below, miners could crater 15% to 20% fast.
Now the question is whether this is a healthy pullback for the end of a bull market. Only time will tell.
But if the tariff situation continues to move into the shadows and the Fed starts to aggressively lower interest rates, the gold trade will likely underperform into next year.
Here’s to the future,
Matt McCallEditor, Market Insights
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