Gold Breakout Nears

A major gold breakout nears with big implications for investor psychology.  Gold has spent recent months consolidating high, winding tighter in a bullish technical pattern that mostly resolves to the upside.  Gold’s resulting new record highs will likely fuel sizable momentum-chasing buying from gold-futures speculators and American stock investors.  That will accelerate gold’s gains and a major herd-sentiment shift back to bullish.

Gold’s price action hasn’t proven exciting since early last spring.  From the end of February to mid-April, gold soared 19.8% achieving 12 new record closes!  That blistering run goosed by global-trade-war fears culminated at $3,421.  Then at best in the 4.2 months since, gold has edged up a mere 0.3% to $3,431 in mid-June.  Gold seemingly hit a brick wall, its powerful bull run exhausting its potential for further gains.

Since mid-April, gold has been drifting sideways at best mired in a high consolidation.  That long lack of meaningful upside action has dramatically shifted sentiment.  Last spring’s greed has all been bled away, replaced by apathy and mounting bearishness.  Traders have largely moved on after so much lackluster gold action.  Yet recent months’ pause was actually the most-bullish-possible outcome for gold technically!

Back in mid-April when gold was hot, it was shooting parabolic.  That $3,421 close capped a remarkable 88.0% soaring in just 18.5 months!  That was a mighty cyclical bull, ranking as the sixth-largest in modern times extending back to 1971.  And without suffering any 10%+ corrections, it was also a single monster upleg!  All that was extraordinary, but gold had simply rallied too far too fast to sustain such lofty prices.

That very week gold peaked, I wrote a contrarian essay Crazy-Overbought Gold!  In it I warned that gold had rocketed up to 1.266x its baseline 200-day moving average, a wild 13.7-year secular high in overboughtness!  That was incredibly-extreme rarefied territory, only the third day out of 3,600 since January 2011 where gold had closed 26%+ above its 200dma!  And similar past episodes sure didn’t end well.

I built a spreadsheet analyzing every gold bull since 1971.  The four largest were legendary 1970s ones after the dollar’s gold standard was severed, a unique one-time event.  Excluding them and the current sixth-largest bull, the next-ten-largest gold bulls in that entire 54.4-year modern-history span averaged gains of 58.0% over 13.9 months.  And they peaked at an average of 1.265x gold’s 200dma, right where it was!

Then following those mighty bulls, gold sold off hard and fast to rebalance extreme technicals and sentiment.  Its average correction ran 15.5% over just 1.9 months!  With another similar selloff highly-probable, we battened down the hatches.  In our newsletters we bought GLD put options, ratcheted up stop losses on existing gold-stock trades to protect more of their big gains, and ceased adding any new positions.

A similar correction to precedent would hammer gold back to $2,891 by mid-to-late June.  And because gold’s mighty cyclical bull had grown so much larger than most of its elite peers, a much-larger selloff was possible.  Gold’s overboughtness was so extreme in mid-April that history argued a big correction-grade selloff was the only likely outcome.  Yet instead of plunging, gold nigh-on-miraculously drifted sideways!

That wasn’t painless, at one point in mid-May gold plunged 7.1% in just over a week to a $3,179 close.  That sure looked like a proto-correction.  But that proved the worst of gold’s selling in recent months.  The purpose of corrections after greed-drenched near-vertical soarings is to rebalance both sentiment and technicals.  Sharp selloffs quickly eradicate greed and overboughtness, paving the way for buyers to return.

But this same necessary work can also be accomplished much more slowly through sideways drifts.  The longer prices stall in high consolidations, the more traders lose interest gradually bleeding off greed.  And that lethargic technical action gives key baselines like 200dmas time to catch up with initially-lofty prices.  Corrections and high consolidations both rebalance, but with quite-different intensities and timeframes.

From mid-April to midweek, gold has meandered in a high-consolidation range from $3,179 to $3,431.  And gold mostly drifted on the higher side, with closes averaging 61% up into that range over that entire 4.2-month span.  I didn’t even think a high consolidation was possible after last spring’s crazy extremes, let alone a mild one!  But that’s what happened, gold showing incredible resiliency defying pressure to sell off sharply.

And gold didn’t just grind sideways, but carved a major bullish technical pattern known as an ascending triangle.  That is highlighted in red in this gold chart.  Ascending triangles can form after surges to major highs.  They are defined by flat upper resistance combined with rising lower support.  While prices fail to break out to the upside, their lows gradually climb winding prices tighter something like coiling a spring.

Again the past half-century-plus’s huge gold bulls argued gold was in for a 15%ish correction down near $2,891.  Note how low that would’ve been in this chart!  And since this current bull had grown much larger than its peers’ average, an even-bigger selloff would’ve been no surprise.  So seeing gold hold strong up near record highs while carving higher lows was amazing.  Ascending triangles are universally considered bullish.

Technical analysts call them continuation patterns, meaning they usually resolve with prices heading the same direction as they entered.  These enable suddenly-higher prices to be digested, gradually working off excessive greed and overboughtness.  Buyers increasingly appreciate this strength and return, which eventually fuels an upside breakout before the triangle closes.  Then its upper resistance becomes lower support.

Gold’s ascending-triangle closing highs have been mid-April’s original $3,421, early May’s $3,422, mid-June’s $3,431, and late July’s $3,430.  These tightly average to $3,426, which we may as well just call $3,425 resistance.  Before believing breakouts, I’ve always preferred waiting until they are decisive with a close 1%+ above.  That weeds out most multiple toppings.  Mid-June’s gold high was just 0.3% above mid-April’s.

A decisive breakout above recent months’ $3,425 resistance starts at $3,459, which we can round to $3,460.  Once gold closes above there, an ascending-triangle upside breakout is confirmed with all kinds of bullish implications.  And that’s not very far from here, merely 2.0% above midweek gold levels!  That doesn’t even require any big gains, just a few days of moderate gold rallying which could happen anytime.

In July and August-to-date alone still mired in this high consolidation, gold has enjoyed fully nine daily rallies of 0.8% or better!  August’s opening day alone saw gold surge a big 2.1% higher.  So it is certainly no heavy lift to have gold power another couple percent higher.  That will carry gold to new all-time-record closes which will attract lots of bullish financial-media coverage and mounting interest and buying from traders.

Throughout all the markets, speculators and investors love chasing winners.  They are quick to pile on and chase upside momentum when prices are heating up and getting popular.  Their capital inflows accelerate those gains, fueling virtuous circles of buying.  The more prices rally, the more traders want to buy, the faster prices climb, the more that strong upside momentum attracts widening groups of traders to chase.

Still if this ascending-triangle technical pattern was all gold had going for it, I would be more circumspect on its prospects and wouldn’t have written this essay.  Bullish technicals are great, but in my experience they prove most prophetic when well-backed-up.  If gold’s normal major demand sources are tapped-out, then there likely won’t be enough near-term buying to drive a major breakout.  But that’s not the case today.

Gold’s mighty cyclical bull since early October 2023 has proven remarkable not just because of its prodigious girth, but because it has often been fueled by foreign gold demand.  That has included episodes of big buying from Chinese investors, global central banks, and Indian investors.  They have done much of the heavy lifting catapulting gold higher, taking the helm from its usual primary drivers normally moving prices.

The first is American speculators trading gold futures.  As those allow extreme leverage currently running as high as 22.6x, these guys punch way above their weight in bullying around gold prices.  Every dollar deployed in gold futures at minimum margins exerts nearly 23x the gold-price impact as a dollar invested outright!  Specs can make bullish upside bets with long contracts and bearish downside ones with shorts.

But longs are way more important, since they’ve outnumbered shorts an average of 4.2x over the last 52 weeks.  During major gold bulls, spec longs form trading ranges.  Normally after massive gains, the specs are already all-in with their likely capital firepower for buying largely exhausted.  That’s evident when total spec longs run 95%+ up into their gold-bull trading range.  Then specs are far more likely to sell hard than buy.

I’d be wary of gold today if that was the case, but it isn’t thanks to that persistent foreign demand.  Per the latest weekly Commitments of Traders report, total spec longs are now running just 42% up into their mighty-gold-bull trading range!  That’s no anomaly either.  Since mid-April when gold initially peaked, total spec longs have averaged just 33% up in across 18 CoT weeks!  Leveraged specs still have big room to buy.

Second is American stock investors buying major-gold-ETF shares, which means GLD, IAU, and GLDM.  I last dug into that in-depth in a mid-July essay Gold Chasing Mounts.  For much of gold’s mighty cyclical bull, American stock investors weren’t doing much gold-ETF-share buying.  That was likely because they were distracted by the euphoric AI stock bubble.  Again foreign investors took the lead driving gold higher.

During gold’s 88.0% bull run over 18.5 months into mid-April, GLD+IAU+GLDM holdings only climbed 11.5% or 157.7 metric tons.  For comparison during gold’s previous two 40%+ monster uplegs that both crested in 2020, GLD+IAU+GLDM holdings averaged huge 34.5% or 412.0t builds!  And not only was this current gold bull’s differential gold-ETF-share buying anemic, it was delayed heavily-weighted into this year.

At the end of January 2025 when gold first bested $2,800, its bull was already up 54.2% or over 6/10ths of the way to mid-April’s initial peak.  Yet astonishingly GLD+IAU+GLDM holdings were still down 0.4% or 5.1t over that span!  Then between late January to mid-April when the next 4/10ths of gold’s bull gains were won, GLD+IAU+GLDM holdings surged 11.9% or 162.8t.  American stock investors buying gold is new!

They just started chasing this year, and are way behind in gold portfolio allocations.  One proxy looks at the total value of all the physical gold bullion held by these three world-dominant gold ETFs compared to the collective market capitalization of all S&P 500 stocks.  Unbelievably midweek that was still running only 0.3%, implying American stock investors have less than one-third-of-one-percent gold allocations so far!

So these guys have huge room to buy and chase gold higher, amplifying its gains.  Their gold investment demand tends to be weakest when stock markets are surging near record highs, like today.  The resulting euphoria leaves them feeling little need to prudently diversify their mega-cap-tech-dominated portfolios.  But when inevitable corrections and bears follow bubble-grade bulls, gold investment demand surges.

Gold’s bullish ascending-triangle technical pattern in recent months is interesting but not compelling.  Yet when combined with both gold-futures speculators and American stock investors still having big room to buy, today’s setup looks really bullish.  Gold’s remarkable mighty cyclical bull apparently hasn’t yet run its course.  This latest high consolidation is actually this bull’s third, the first two resolving with upside breakouts.

The biggest beneficiaries of gold’s bull resuming galloping higher on balance will be the gold miners’ stocks.  My financial-newsletter business has specialized in trading this high-potential sector for over a quarter-century now.  Major gold stocks tend to amplify material gold price moves by 2x to 3x, while smaller fundamentally-superior mid-tiers and juniors often do better around 3x to 4x.  And they remain cheap.

My last couple essays analyzed the epic record Q2 results reported by the top 25 gold miners in both the leading GDX and GDXJ gold-stock ETFs.  For eight quarters in a row now they’ve achieved phenomenal earnings growth leaving them really undervalued relative to prevailing gold prices!  So they still have massive mean-reversion rallying left to do to normalize with gold and better reflect their fantastic fundamentals.

I mentioned back in mid-April when gold soared to extreme overboughtness we ratcheted up trailing stops on our extensive newsletter gold-stock trades.  That resulted in many big realized gains as high as +99%!  Then in late June as it started becoming more apparent gold was consolidating high rather than correcting, we resumed adding great gold-stock trades.  Midweek their unrealized gains are already as high as +61%!

Gold stocks’ parallel bull run amplifying gold’s is going to grow much larger as the latter breaks out to new record highs.  When investors grow bullish on gold and chase its upside momentum, they also get more interested in its miners.  The gold-stock sector remains very small in the grand scheme of markets, so any sizable capital inflows from American stock investors will catapult these prices much higher in coming months.

Successful trading demands always staying informed on markets, to understand opportunities as they arise.  We can help!  For decades we’ve published popular weekly and monthly newsletters focused on contrarian speculation and investment.  They draw on my vast experience, knowledge, wisdom, and ongoing research to explain what’s going on in the markets, why, and how to trade them with specific stocks.

Our holistic integrated contrarian approach has proven very successful, and you can reap the benefits for only $10 an issue.  We extensively research gold and silver miners to find cheap fundamentally-superior mid-tiers and juniors with outsized upside potential.  Sign up for free e-mail notifications when we publish new content.  Even better, subscribe today to our acclaimed newsletters and start growing smarter and richer!

The bottom line is a major gold breakout nears.  Rather than correct hard like precedent after soaring into mid-April, gold consolidated high to work off extreme overboughtness.  That sideways drift has formed a bullish technical pattern usually resolving in upside breakouts.  A decisive breakout to new record highs will fuel much bullish financial-media coverage and interest in gold, attracting in big new capital inflows.

That upside momentum will feed on itself, motivating increasing numbers of traders to chase gold higher.  And amazingly after such a mighty cyclical gold bull, both American gold-futures speculators and American stock investors still have big room to buy.  So despite already being huge, this gold bull still has legs.  As gold resumes powering higher on balance, gold stocks will continue to outperform catching up with it.

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