Gold’s Vexing Drift

Gold has mostly drifted sideways for the last couple months, vexing traders.  Bullish ones eager for its mighty cyclical bull to resume are frustrated gold isn’t surging on major bullish news.  And bearish ones expecting a healthy correction after extreme overboughtness are being equally confounded.  Gold’s high consolidation since mid-April has really thwarted traders, driving them away and fueling serious apathy.

From mid-January to mid-April, gold blasted 28.5% higher!  Achieving 24 record closes in that short span, gold increasingly won over traders who rushed to chase its strong upside momentum.  As gold’s big-and-fast gains grew, bullish financial-media coverage mounted.  That accelerated gold’s long-overdue return to popularity, attracting in more traders bidding it higher.  Herd greed swelled as key technical milestones passed.

Then in mid-April gold suddenly hit a wall, on no particular news.  It had simply soared too far too fast to be sustainable, sucking in all available near-term buyers.  I warned about that then, writing an essay that week analyzing crazy-overbought gold.  Gold had rocketed 26.6% above its baseline 200-day moving average to $3,421!  That was only gold’s third trading day since January 2011 where it closed 26%+ over that.

So the very next day in our weekly subscription newsletter, I analyzed gold’s extreme technicals in light of its half-century-plus history.  Similar past extremes had been followed by swift corrections, averaging 15.5% losses in just 1.9 months!  So I changed my short-term gold bias to short, added GLD puts, and ratcheted up trailing stop losses on our extensive gold-stock trades to protect more of our big unrealized gains.

With gold soaring into there fueling very-bullish sentiment, my contrarian call spawned plenty of flak.  That was another indication gold was likely near an inflection point, with the great majority of traders convinced it would continue surging.  But gold’s own precedent argued a correction-grade 10%+ selloff soon was highly-probable, so I went with those odds.  Yet gold neither sold off hard nor kept rallying, bedeviling all!

Initially that healthy-selloff-necessary thesis looked good, as gold quickly fell 5.5% into early May.  But gold rocketed back on big Chinese buying, soaring 5.7% in two trading days on no apparent news.  That catapulted gold to a new record close a hair over mid-April’s at $3,422.  But that immediately failed, with sharp selling quickly resuming.  Gold plunged 7.1% over the next six trading days to a new pullback low of $3,179.

That combined for the better part of a month with zero progress higher and not very much lower.  Rather than correcting as it should have, gold was establishing a high-consolidation trading range from roughly $3,175 to $3,425.  Gold spent the subsequent five weeks still meandering within it, frustrating bullish and bearish traders alike.  But that high consolidation was slowly bleeding off both overboughtness and greed.

Within that vexing drift, gold had days where it didn’t surge like usual on bullish developments and others where it didn’t sell off materially on bearish ones.  On May 13th for example, three of CPI inflation’s four key metrics printed cooler than expected boosting Fed-rate-cut odds.  The resulting 0.8% drop in the US Dollar Index should’ve spawned big gold-futures buying.  Yet the most gold could muster was a piddling 0.4% rally!

For fully 37 trading days after mid-April’s crazy-overbought peak, gold closed no more than 0.0% above it to no lower than 7.1% underneath it!  That vexing drift grated on traders gaming both directions, as gold neither resumed its powerful bull run nor rolled over into an overdue correction.  Gold remained well within that high-consolidation trading range on June 12th, the final day before Israel preemptively attacked Iran.

Overnight Israel assassinated many of Iran’s top nuclear scientists and military generals, and extensively bombed its nuclear facilities!  Given Iran’s colossal ballistic-missile stockpiles, that risked quickly spiraling into a wider Middle East war.  Since Iran could rain missile hell on anything in the region including Jewish cities and other countries’ oil infrastructure, gold should’ve soared 5%+ overnight.  Yet it hardly moved.

The next day it merely rallied a small 1.3% to $3,431 on the US close.  Not only were those gains meager considering that WW3-threatening backdrop, but that close was just 0.3% above mid-April’s original peak nearly eight weeks earlier!  Then over the next few trading days into midweek, gold lost another 2.0% as geopolitical risks soared.  Wars can quickly spiral out of control, yet gold failed to respond as it should have.

After two long months of drifting sideways-to-lower on balance, mid-April’s mounting gold enthusiasm has been supplanted with serious apathy.  That influx of new momentum traders have largely abandoned gold since.  And without a 10%+ correction, gold has mostly remained extremely overbought since though that is gradually moderating.  So short-term bears looking for a buying opportunity have also been denied victory.

Refusing to either resume powering higher or significantly fall, gold has been languishing in something of a technical no man’s land devoid of opportunities.  Interestingly there is some recent precedent for this.  From early October 2023 to mid-April 2025, gold soared 88.0% higher in 18.5 months without a single 10%+ correction!  That makes this not only a mighty cyclical bull, but a truly-extraordinary single monster upleg.

This chart superimposes gold’s increasingly-vertical bull run on speculators’ collective positioning in gold-futures long and short contracts.  Three distinct gold surges comprised this monster upleg, each followed by sideways-drifting high consolidations rather than correction-grade selloffs.  The former also rebalance sentiment keeping gold bulls healthy, but bleed off greed much more gradually and slowly than the latter.

Gold’s first foray into extremely-overbought territory more than 15% above its 200dma in this mighty cyclical bull came in mid-April 2024.  Gold soared 18.8% above that key baseline, the most overbought it had been in 3.7 years since mid-August 2020.  That was right after gold’s last monster upleg peaked at 40.0% gains, heralding a major 18.5% correction in 7.0 months!  So another correction-grade selloff was a real risk.

Yet gold merely pulled back 4.0% over the next couple weeks, before surging right up to new record highs a month later in mid-May.  Gold suffered another 5.7% pullback after that into early June, but was drifting sideways overall in another high consolidation.  That technical pattern matched today’s.  Gold shot up to extreme overboughtness, sold off modestly, surged to new highs, sold off deeper, then stabilized without correcting.

Probably due to big central-bank buying and mounting Chinese investment demand, gold was able to weather extreme overboughtness merely drifting sideways.  That did enough sentiment-rebalancing work to pave the way for gold’s next surge higher into late October.  Gold again blasted up to extremely-overbought levels 18.3% above its 200dma!  That again threatened an imminent 10%+ correction-grade selloff.

Over the next couple-plus weeks, gold indeed tumbled 8.0% right on the verge of an upleg-slaying correction.  That was and remains the biggest selloff of gold’s mighty cyclical bull.  Gold bounced again, then rolled over again to within 1.2% of mid-November’s pullback low.  But that nascent selloff stabilized into another sideways drift on balance, a similar high consolidation.  That paved the way for gold’s next big surge higher.

That was this current one culminating in mid-April 2025, since following that original high consolidation’s pattern.  An extremely-overbought peak followed by a pullback then a bounce to marginal new highs then a larger pullback soon stabilizing into an overall sideways drift.  Yet the last couple months’ has been the most remarkable yet considering how crazy-overbought gold got and how massive its cyclical bull has grown.

Technically this still looks like a major triple top on this longer-term chart, not only gold shooting near vertically but its 50dma following in a quasi-parabolic trajectory!  That remains worrisome, even though considerable greed has been worked off since mid-April.  Back then I did a study of every 10%+ gold move since January 1971, trying to understand probabilistic outcomes.  The results were quite bearish.

I ranked every gold cyclical bull in that super-long 54.4-year span, with the current one weighing in at sixth place.  The top four were all 1970s ones ranging from 99% to 128% gains, a wild decade when gold was decoupled from the US dollar.  Severing a gold standard can only happen once in a currency’s history, so those weren’t very comparable to today’s.  Thus I excluded those four and today’s still-in-progress bull.

The next-ten-largest cyclical gold bulls in modern history averaged 58.0% gains over 13.9 months.  They peaked at an average of 26.5% above gold’s 200dma, exactly where it just stretched to in mid-April!  The average correction after those top-ranking bulls again averaged hefty 15.5% losses over a quick 1.9 months.  If gold conformed to that precedent, that would hammer it way back down near $2,891 by mid-June or so!

Obviously that hasn’t happened, not even close.  Gold’s 7.1%-at-worst pullback so far isn’t even half that prior average correction.  While gold still could roll over into a 10%+ selloff any day, the chances are fading with each passing week.  Prevailing sentiment today is way less greedy and much more apathetic than it was in mid-April.  So after a couple months of rebalancing, there’s less need for a sharp selloff to help.

Why has gold defied the odds and consolidated high after soaring to such crazy-overbought extremes?  I’ve been thinking a lot about that, and have a thesis.  Gold’s rate of ascent was fairly normal until mid-March, when trade-war fears really mounted on Trump’s big-tariffs threats.  His “Liberation Day” presser after the close on April 2nd shocked everyone, announcing way-larger reciprocal tariffs than most expected.

China’s in particular were 34% on top of existing ones, taking its total to 54%.  But Beijing soon retaliated, mirroring big tariffs on US imports.  That infuriated Trump, so in a series of escalations over the following week he catapulted total China tariffs to an embargo-grade 145%!  That threatened the big export-factory sector of China’s economy, as without American consumers a large chunk of those factories would shut down.

Fearing that would slam Chinese stock markets, Chinese investors flooded into gold at a frenzied pace.  They had been big buyers throughout much of gold’s mighty cyclical bull, but they greatly accelerated their inflows.  So in April, Chinese investors flooded into local gold ETFs at their fastest pace on record by far.  Their collective gold-bullion holdings soared on the order of 45% in April alone on colossal ETF-share demand!

With Chinese investors doing all the heavy lifting catapulting gold higher, its normal primary drivers didn’t have to.  Those are American speculators’ gold-futures trading and American stock investors’ gold-ETF-share buying.  Amazingly as gold soared into mid-April, specs were actually aggressively dumping longs as seen in this chart above!  They prudently worried gold’s increasingly-vertical surge wouldn’t be sustainable.

Total spec longs had soared to a 4.6-year secular high of 441.0k contracts in late September 2024 as that second surge in gold’s monster upleg peaked.  Since then, specs have mostly been paring their longs on balance.  By early April the day before Trump’s shocking reciprocal-tariffs revelation, total spec longs had retreated to 378.6k which was still high.  But as scared Chinese investors took gold’s helm, specs started to flee.

Because of the extreme leverage inherent in futures trading, gold’s have an outsized impact on its price action.  Midweek for example, each 100-ounce contract controlled $336,300 worth of gold.  Yet specs are only required to keep $15,000 cash margins in their accounts for each contract traded.  That equates to extreme maximum leverage of 22.4x, so each dollar traded in gold futures has a proportional price impact on gold!

Normally gold corrections after big surges are largely driven by heavy gold-futures selling.  But since the Chinese had fueled gold’s surge, American speculators’ gold-futures longs hadn’t and weren’t super-high as gold peaked.  And over four weeks into late April, they collapsed back down to just 291.1k longs!  That was only 20% up into spec longs’ gold-bull trading range, compared to 95%+ typically near major gold peaks.

With spec longs extraordinarily low after such a powerful gold bull run, these guys didn’t have much need to sell.  Over the next five weeks into late May, total specs longs drifted in an incredibly-tight range from 289.8k to 292.1k contracts!  Specs’ gold-futures upside bets were already so low as gold crested that they didn’t have much left to dump.  Without big gold-futures selling hammering gold, corrections are way less likely.

Specs’ lack of long dumping has to be the dominant reason gold has consolidated high recently instead of selling off hard.  And such low spec longs are also quite bullish for the yellow metal.  They slumped to a 14.5-month low in mid-May, levels last seen in late February 2024 when gold was still down at $2,030!  All the spec long buying since has effectively been reset, leaving these guys big capital firepower to resume buying.

And that could happen fairly soon.  This next chart is updated from an essay I wrote a few weeks ago on gold’s summer doldrums.  All modern gold-bull-year summers are individually indexed to 100 at May’s final closes, then averaged together.  Gold has long tended to drift sideways to lower into early July.  Despite gold’s strength this summer which is shown in dark blue, it has stayed in its usual summer trading range.

Most of the time during market summers, gold meanders within 5% either way from May’s final close.  That’s certainly proven true again this year.  And gold’s big surge to 4.2% above May’s exit was that day after Israel attacked Iran, a geopolitical spike.  Those are almost always short-lived, and before and after that gold was running 2.9% and 2.8% above which is more normal.  Traders quickly move on after such events.

That’s natural, as we all have strong recency biases.  Last Thursday evening when I found out Israel had launched a war against Iran to destroy its nuclear facilities, I felt real trepidation fearing World War III had just started.  I didn’t sleep well that night.  Yet now just a week later, Israel’s ongoing airstrikes and Iran’s ballistic-missile retaliations have almost faded into background noise for markets as the shock factor passed.

While geopolitical risks remain high for this war spiraling into a wider one, traders have already adjusted to this new reality.  So kneejerk gold buying on new geopolitical crises soon gives way to symmetrical selling.  And gold’s Israel-Iran spike wasn’t even impressive, much smaller than it should’ve been to levels barely over mid-April’s original peak.  That’s likely because gold was still extremely overbought when that news hit.

But regardless of current events, gold’s strong seasonal autumn rally tends to get underway by mid-July or so.  That’s initially driven by Asian-harvest gold buying.  After farmers reap their crops and figure out how much surplus income they earned, they tend to plow some of that into gold bullion to preserve their wealth.  Gold could very well follow that typical meandering grind higher again during these coming months.

Despite gold’s still-stretched technicals, major bullish factors argue this bull run is likely far from over.  Those include American gold-futures speculators’ really-low longs, American stock investors’ collective gold allocations remaining super-low, and ongoing big buying by central banks and Chinese investors.  American stock investors in particular have hardly even started chasing gold’s mighty cyclical bull yet.

There are three major gold US gold ETFs, GLD, IAU, and GLDM.  Together their holdings totaled 1,530.7 metric tons of gold bullion midweek.  Incredibly that is only 11.5% or 157.6t higher since gold’s mighty 88.6% cyclical bull was born back in early October 2023.  Gold’s previous two 40%+ monster uplegs both cresting in 2020 saw massive GLD+IAU builds alone averaging 32.9% or 387.4t!  Big buying is still coming.

Considered another way, this Wednesday’s GLD+IAU+GLDM holdings were worth $166b.  That is just 0.3% of the collective market capitalization of all the elite S&P 500 stocks!  So American stock investors’ gold allocations still round to zero.  Sooner or later they will pile into gold, likely spurred on by the bubble-valued US stock markets rolling over into an overdue bear.  Huge gold buying is still coming, which is very bullish.

So gold’s vexing-drift days are likely numbered.  That has already done considerable work rebalancing sentiment, bleeding off greed and fueling serious apathy.  While this wasn’t as clean as a correction, it may prove to be sufficient.  Thus we’re getting ready to start redeploying into great fundamentally-superior smaller mid-tier and junior gold miners soon, refilling our newsletter trading books for gold’s next surge.

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The bottom line is gold’s sideways drift in the last couple months has proven vexing.  With gold stalling out and upside momentum vanishing, frustrated bullish traders have increasingly abandoned it.  Their greed in mid-April has been largely bled away to apathy.  Bearish traders have also been denied their good buying opportunity, with defiant gold refusing to roll over into a correction-grade selloff.  That left no one happy.

But after two long months of consolidating high, this necessary sentiment-rebalancing move ought to be nearing its end.  Central banks and Chinese investors are likely to continue reallocating capital into gold.  And both American gold futures speculators and American stock investors have massive room to buy.  So gold’s usual seasonal autumn rally soon getting underway could prove the start of this bull’s next surge higher.

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