Gold Consolidating High Again

Gold is consolidating high again, prolonging its remarkable monster bull.  Since rocketing into extreme overboughtness in mid-October, gold has largely been drifting sideways on balance.  This is really defying precedent for big-and-fast drawdowns after such massive runs, for an unbelievable fourth time in this bull.  How its three earlier high consolidations played out offers insights into this current one’s likely behavior.

In a single month into October 20th, gold soared 18.2% achieving 15 new all-time-record closes!  That looked to climax an extraordinary 139.1% bull run since early October 2023, ranking as gold’s largest since 1971!  Gold didn’t suffer a single 10%+ correction in that entire span, keeping that amazing bull intact.  But gold had soared so far so fast it stretched to its most-overbought levels seen in nearly two decades.

Fully 55 years of gold history argued a big-and-fast drawdown was necessary after such a blistering bull.  Gold’s next-ten-largest cyclical bulls since 1971 averaged subsequent selloffs of 20.8% over just 2.1 months!  Gold’s smallest drawdown after all those bulls was 12.5% in 1.0 months.  So as gold peaked, odds overwhelmingly favored a similar 20%ish drop to rebalance extreme technicals and eradicate excessive greed.

Indeed gold followed that ironclad historical script initially, plunging 9.5% over the next couple weeks into early November.  That already proved the biggest selloff of gold’s epic bull, on the verge of correction territory which would formally slay it.  Then gold bounced and started recovering, which is normal during larger selloffs.  Those aren’t linear, seeing periodic strong countertrend rallies punctuating broader selling.

Just two weeks into that big-and-fast drawdown, gold’s trading range was running from that large-pullback low of $3,935 to mid-October’s $4,350 peak.  But that half-century-plus precedent argued gold would soon break down to lower lows extending that necessary and healthy rebalancing selloff.  Yet today five weeks after gold’s initial low and seven weeks after it peaked, that breakdown hasn’t come anywhere close!

The most-likely reason gold’s selloff was apparently truncated early was speculators’ gold-futures trading.  But that was masked until recently by that record-long six-week government shutdown from early October to mid-November, when no gold-futures-positioning data was published.  So hyper-leveraged gold-futures speculators who often bully around gold prices were trading in stealth mode, no one knew what they were doing.

Shockingly rather than assumed frenzied buying as gold soared in its terminal month, specs were actually aggressively selling!  That left their positioning way more bullish for gold as it peaked, removing a huge chunk of leveraged selling pressure.  I wrote a whole essay last week analyzing gold’s futures plot twist, which proved popular.  This is essential to understand, the dominant justification for a gold high consolidation.

If gold wasn’t facing usual cascading gold-futures dumping after its latest extreme topping, then maybe it can evade its usual subsequent big-and-fast drawdown.  High consolidations also rebalance extreme technicals and sentiment, but take much longer than selloffs to accomplish that critical mission.  If gold holds over 10%-correction territory at $3,915 in coming weeks, it will be this monster bull’s fourth high consolidation.

This chart superimposes gold and its key technicals over a construct measuring overboughtness.  It simply divides gold’s daily closes by its 200-day moving average.  The resulting Relative Gold or rGold multiple renders gold’s price action in constant-percentage terms around that key 200dma baseline.  Charted over time, this reveals how overbought or oversold gold is relative to its 200dma and how that’s trending.

This biggest dollar cyclical gold bull ever was born in early October 2023 near $1,820, humble origins.  Yet it accelerated right out of the gates, surging 13.8% over eight weeks into early December that year.  That culminated at $2,071 which was gold’s first nominal record close in 3.3 years!  Gold wasn’t even overbought then after plunging to very-oversold levels birthing this bull, trading at just 1.066x its 200dma.

The Relative Gold trading range over the past five years runs from 0.93x to 1.18x.  The former is where extreme oversoldness starts, when gold is hammered down under 93% of its 200dma.  Such levels spawn major gold uplegs or bulls.  On the other end extreme overboughtness starts at 18% above that same key baseline.  That’s when gold is highly likely to suffer major selloffs, 10%+ corrections or 20%+ bears.

Neither was yet necessary in early December 2023, yet gold drifted sideways anyway.  For the next twelve weeks or 3.0 months, gold didn’t break out above that initial peak.  Decisive breakouts ending consolidations require closes 1%+ above the last interim highs.  At best in late December, gold merely edged 0.3% higher.  Despite no overboughtness and little greed, this gold bull’s initial consolidation lasted a long time.

Gold finally broke out as March 2024 dawned, then soared another 14.7% into mid-April.  That extended its total bull to 31.2%, already large.  Yet gold soared so far so fast to $2,388 that it stretched an extreme 18.8% over its 200dma!  Those were the most-overbought levels it had seen in 3.7 years, since August 2020 when a monster 40.0% upleg peaked.  That argued for a big-and-fast drawdown or slower high consolidation.

The latter came to pass, with gold drifting sideways for a month bleeding away excessive greed.  Yet in mid-May gold surged to a pair of closes 1.1% and 1.5% above mid-April’s peak, a decisive breakout.  But rather than building on that, gold lapsed right back into high-consolidation mode.  One more close much later in mid-July was 3.2% better than mid-April’s, but again gold couldn’t gain any sustained-breakout traction.

As is evident in this chart, gold didn’t resume powering higher again until mid-August 2024.  So despite three new marginally-higher closes, this bull’s first true high consolidation effectively lasted sixteen weeks or 3.8 months.  While gold’s prior sideways drift was this bull’s initial consolidation, technically it wasn’t a high one since gold wasn’t extremely overbought leading into it.  Yet both were drawn-out multi-month affairs.

From mid-August 2024 to late October that year, gold surged another 14.7% higher extending its overall bull run to +53.1%!  Monster status starts at 40%, so this bull was already exceptional.  Yet again gold had soared so far so fast that rGold levels stretched to an extreme 1.183x at $2,786.  So again precedent argued for a big-and-fast drawdown or another high consolidation to rebalance stretched technicals and sentiment.

This gold bull got lucky again experiencing another sideways drift.  Initially gold suffered a larger 8.0% pullback into mid-November, which was its largest selloff of this bull until that recent 9.5% one.  Gold traded lower than late October’s peak until the end of January 2025, with its decisive breakout finally arriving in early February.  So this mighty gold bull’s second high consolidation lasted over 12 weeks or 3.1 months.

See the pattern here?  Since they are milder, high consolidations take much longer than real selloffs to rebalance away extreme technicals and bleed off excessive greed.  Those first two high consolidations in gold’s bull lasted 3.8 and 3.1 months.  And that earlier initial consolidation which wasn’t really a high one persisted a similar 3.0 months.  Such sideways drifts give markets time to normalize new higher price levels.

From early February 2025’s decisive breakout gold blasted another 21.9% higher to $3,421 in mid-April.  That grew its total bull to a truly-remarkable 88.0% in just 18.5 months!  That stretched gold to a crazy-overbought 1.266x its 200dma, the most-overbought it had been in fully 13.7 years!  That sure argued for a big-and-fast drawdown to rebalance away those extremes.  Yet gold defied the odds consolidating high again.

Gold edged up to a slightly-higher close in mid-May, then plunged 7.1% in just over a week in a sizable pullback.  Then it didn’t achieve any more record highs until mid-June, and that was just 0.3% over mid-April’s peak.  Gold didn’t decisively break out of a remarkable third high consolidation in its monster bull until September’s first trading day.  That sideways drift persisted for an even-longer eighteen weeks or 4.3 months.

Technical extremes result from prices soaring too far too fast to be sustainable.  Those necessitate some kind of cooling-off period after, either a faster selloff or slower high consolidation.  This epic gold bull’s first three had fairly-tight average durations of 3.7 months, big chunks of time!  If gold doesn’t roll over into big-and-fast drawdowns, it takes much longer to normalize technicals and let excessive herd greed sufficiently fade.

After that third high consolidation, gold blasted up another 26.3% into mid-October’s $4,350 peak.  That extended gold’s monster cyclical bull to that all-time record up a mind-blowing 139.1% in 24.5 months!  But gold soared so far so fast it stretched an extraordinarily-extreme 33.0% above its baseline 200dma!  That proved the most-overbought gold had been in a whopping 19.5 years, since way back in mid-May 2006!

Honestly after that insane 1.330x rGold read, another high consolidation wasn’t even in my possibility set.  After that last comparable overboughtness nearly two decades earlier, gold had plummeted 21.9% in just 1.1 months!  And again gold’s next-ten-largest bulls since 1971 including that one averaged subsequent big-and-fast drawdowns of 20.8% over 2.1 months.  It would require a miracle for gold to consolidate high again.

Yet here we are over seven weeks later, and that’s exactly what has happened!  Again gold suffered that sharp 9.5% pullback into early November, which wasn’t quite a 10%+ correction formally ending this bull.  Ever since, gold has been drifting sideways on balance.  And since mid-October’s peak, gold’s closes have averaged a solid 40% up into their latest high-consolidation trading range from $3,935 to $4,350.

With each passing week gold doesn’t roll over into a 10%+ selloff, the odds mount this bull is somehow experiencing a miraculous fourth high consolidation.  In my quarter-century-plus of intensely studying gold and actively trading gold stocks, I’ve never witnessed a bull run anything like this.  Its remarkableness in many ways is off the charts, the Methuselah of gold bulls with legendary strength, persistence, and resiliency.

My decades of gold research leave me skeptical gold can somehow keep drifting sideways and avoid a bigger selloff before the next surge to major new highs.  Yet that’s sure the way things are looking now.  But even if gold does successfully consolidate high again, this fourth one is still young at merely seven weeks or 1.7 months old.  That’s still less than half that 3.7-month average of this bull’s prior three ones!

If gold needs to grind horizontally that long to normalize extreme technicals and eradicate mid-October’s serious herd greed, a decisive breakout powering to many new records isn’t likely before early February.  That may be optimistic, as the more extreme gold’s overboughtness proves entering a high consolidation the more time it may need to gradually work that off.  Recent gold action shows plenty of residual excitement.

Gold’s strength during this apparent fourth high consolidation is largely the result of just three lucky pieces of news.  Without those, gold would look much worse.  The first ignited a 2.7% surge on November 10th as gold threatened new lows.  The driver was Trump posting on Truth Social that he wanted the US government to pay a $2k tariff dividend to most Americans, which would be highly-inflationary helicopter money.

Soon after gold started drifting lower again, but surged another 1.8% on November 24th to kick off light Thanksgiving-week trading.  Another Trump Truth post fueled that, as he declared “significant progress” in US-China trade talks and that he would be traveling to China to meet its leader in April.  Gold built on that momentum, rallying another 0.8% on Thanksgiving Eve and 1.3% on Black Friday with most traders out.

Then gold slumped a bit before flatlining into this Wednesday’s surprising FOMC decision.  While traders universally expected a third 25-basis-point rate cut in as many FOMC meetings, the Fed surprised by relaunching quantitative-easing Treasury monetizations.  It declared it was immediately starting to buy $40b per month of Treasuries, which is also inflationary!  The Fed had just announced the end of QT in late October.

With the Fed monetizing government bonds again, the US dollar took a big hit on that surprising QE-lite announcement.  That helped gold surge higher, likely on futures buying.  But the US Dollar Index has been in an uptrend since a major 3.6-year secular low on the eve of the FOMC’s first recent rate cut back in mid-September.  If the USDX’s young uptrend resumes and breaks out above its 200dma, that will slam gold.

There’s always an element of randomness in surprise market-moving news.  Gold enjoying three bullish events in a row is rare.  An overdue bearish one could quickly hammer it back down to the lower end of this high-consolidation trading range.  Any day Trump or the Fed chair or other top Fed officials could say something igniting a dollar rally.  And major-economic-data releases spinning back up could prove Fed-hawkish.

Gold consolidating high again is great, a testament to this remarkable monster bull’s strength.  But this apparent fourth high consolidation remains young, less than half the average duration of the prior three.  So it’s premature to get excited about a decisive gold breakout.  If gold doesn’t sell off sharply after extreme toppings, it needs to drift sideways on balance for several months to sufficiently bleed off herd greed.

From a trading standpoint, high consolidations require a different strategy than big-and-fast drawdowns.  Such sharp selloffs demand aggressive concentrated buying of gold-stock positions surrounding gold’s likely bottoming, which doesn’t last long.  But since high consolidations are drawn-out, new trades can be added more gradually.  Ideal times are when gold slumps into the lower quartile of its high-consolidation range.

Again running from $3,935 to $4,350 so far, that 25%-up-in threshold is $4,039.  50% and 75% up in are at $4,143 and $4,246.  We’re looking for those lower-quartile gold levels to start rebuilding our newsletter trading books, as gold’s mid-October plummeting stopped us out.  The 60 newsletter stock trades we’ve realized this year including all losers averaged truly-spectacular annualized realized gains of +119.9%! 

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The bottom line is gold has spent the last seven weeks consolidating high again, for the fourth time in its monster record bull.  Since soaring to extraordinarily-overbought extremes in mid-October, gold has narrowly evaded a correction-grade selloff.  And recently it has surged into the upper end of its sideways-drift trading range on several consecutive bullish news developments.  That’s rekindled much excitement.

Yet gold’s latest apparent high consolidation remains young, less than half the average duration of this bull’s first three.  After extreme toppings, it takes several months to normalize stretched technicals and bleed off sufficient herd greed.  Even if gold miraculously consolidates high again out of multi-decade extremes, it likely faces much more drifting and considerable selling back into the lower quartile of its range.

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