Gold Reckoning Looms

Gold soared in 2025 achieving one of its most-phenomenal years ever, smashing countless records.  Such epic performance naturally earned gold universal adoration, and fueled intense herd greed.  That combined with extremely-stretched technicals leaves gold vulnerable to some kind of reckoning early in this new year.  That should prove a big-and-fast drawdown, though gold could get lucky and consolidate high again.

With last year finally in the books, gold clocked in with an astounding 64.3% gain!  Gold achieved 53 new all-time-record closes in 2025, or on fully 21% of all its trading days.  Those included besting the huge psychological milestones of $3k and $4k for the first time ever.  Gold hasn’t enjoyed a better year since all the way back in 1979, when it skyrocketed 126.5% on its way to a crazy popular-speculative-mania bubble.

As I was just a little kid 46 years ago, I certainly don’t remember 1979’s wild gold action.  But I’ve heard lots of fascinating stories over the years from old-timers, and have thoroughly analyzed that data.  Across all markets including gold, extreme up years are almost always followed by reckonings.  Their gains balloon so darned large that markets have to reverse the other way for some time to rebalance resulting extremes.

I can’t write 1979 without thinking about Smashing Pumpkins, but that year’s reckoning is a great case in point.  While 1980 overall wasn’t bad with gold rallying another 14.5%, the start of that year was brutal.  In only 2.6 blistering months into mid-January 1980, gold skyrocketed an eye-popping parabolic 127.9%!  That was its most-extreme cyclical bull ever in dollar terms, and its largest-ever until 2025’s monster specimen.

So 1979’s incredible record annual run persisted into the first few weeks of January 1980, but then the bottom fell out.  Over just the next 1.9 months into mid-March, gold plummeted a soul-crushing 43.4%! Ominously big-and-fast drawdowns are par for the course immediately following large ascents, especially vertical parabola-like ones capping enormous bulls.  And gold’s recent performance somewhat fits that bill.

From early October 2023 to late December 2025, gold powered an epic record 148.8% higher in 26.7 months!  That smashed January 1980’s cyclical bull to become gold’s largest-ever by far.  Thankfully today’s is nowhere near as intense, with gold averaging a mere 5.6% monthly-ascent pace compared to a neck-snapping 48.6% into January 1980!  Rallying slower, gold is also nowhere near as overbought this time.

Back at that bubble-cresting in mid-January 1980, gold had skyrocketed an all-time-record 138.7% above its baseline 200-day moving average!  Prices relative to their 200dmas is a fantastic overbought-oversold metric.  Last Friday at its latest $4,528 peak, gold was stretched a far-milder-but-still-extreme 26.3% over its 200dma.  Back in mid-October at gold’s initial $4,350 topping, that rGold reading was way worse at 33.0%.

That was a scary 19.5-year secular high, the most overbought gold had been since mid-May 2006!  And that required quite a reckoning.  Right after a 92.3% cyclical bull over 23.9 months which ranks as gold’s sixth-largest since 1971, gold plummeted 21.9% over just 1.1 months.  That made for a 19.6%-per-month drawdown pace, rivaling early 1980’s 23.1%!  Reckonings after extreme surges are just the way markets work.

Again today’s epic record cyclical gold bull is its biggest-ever in dollar terms.  After the next-ten-largest cyclical gold bulls since 1971 when the dollar was severed from gold, gold’s average drawdown right from those peaks was a big-and-fast 20.8% over just 2.1 months!  Even taking out January 1980’s brutal reckoning doesn’t help much, as the next-nine-largest cyclical gold bulls averaged a similar 18.3% in 2.1 months. 

Heck the next-24-largest cyclical gold bulls after today’s averaged subsequent selloffs of 20.2% over 4.7 months!  So if gold suffers a 20%ish selloff in early 2026, it would be totally normal and really healthy.  That would rebalance away late 2025’s incredibly-extreme technicals and wildly-greedy herd sentiment.  Such a necessary reset prepares the way for gold’s secular bull to continue advancing on balance, which is great.

While today’s epic record gold bull has proven remarkable in many ways, leading that list is its uncanny ability to avoid 10%+ correction-grade selloffs.  Four times in these last couple years gold has soared way up to dangerous extremely-overbought levels.  Then four times it has consolidated high out of those rather than selling off, which is nigh-on miraculous!  Sideways drifts also rebalance away extremes, but more slowly.

This chart looks at gold and its key technicals over these past several years.  This monster bull’s prior overboughtness extremes relative to its 200dma are noted in black.  So far all have been followed by relatively-mild sub-10% pullback-grade selloffs ranging from 7.1% in mid-May 2025 to 9.5% into early November.  Despite its monumental girth, this bull has exhibited astounding agility in eluding corrections.

Four times in this mighty bull, gold has soared too far too fast to extremely-overbought levels 18%+ above its trailing 200dma.  Then after each episode it has consolidated high instead of correcting!  I wrote a whole essay a few weeks ago analyzing these high consolidations if you want more depth.  The prior three before this recent fourth averaged fairly-tight durations of 3.7 months before sustained breakouts to new highs.

Back in late October after gold soared to that extreme multi-decade overboughtness high, it looked to be rolling over hard in a big-and-fast drawdown.  Gold plunged 9.5% in just over two weeks, already making for its biggest selloff of this entire record bull!  Falling 10%+ would’ve formally slain it, but gold managed to bounce out of there and started drifting sideways on balance.  That was a highly-improbable outcome.

Such a massive bull avoiding an overdue reckoning reminded me of basketball.  Both of my kids have played competitive basketball most of their lives, in the big-man role since they are really tall and strong.  Centers have to be tough as nails, as they are constantly getting beat up in the paint.  They are naturally defensive powerhouses disrupting plays and rebound machines, forcing turnovers which is essential for winning.

But to excel in high-level competitive basketball in middle school, high school, and beyond, centers also must have great agility and finesse for their sizes.  They have to float around multiple defenders to make contested shots, and have light touches to tip deflected balls back into hoops.  Watching the all-time-great big men like Nikola Jokic of the Denver Nuggets play is magical, their grace and fluidity belies their size.

This colossal gold bull is moving like that, what should be a lumbering giant somehow light on its feet!  Until last week, gold looked to be consolidating high again for the fourth time in this record bull.  That high consolidation ran between mid-October’s $4,350 peak and the soon-following large-pullback low of $3,935.  Heading into light low-volume Christmas-week trading, that fourth high consolidation was 2.0 months old.

This bull’s prior three out of extreme overboughtness lasted 3.8, 3.1, and 4.3 months, again averaging 3.7.  So gold’s fourth high consolidation was quite immature, likely not drifting sideways long enough to sufficiently rebalance mid-October’s extreme technicals and frenzied herd greed.  While the latter can’t be directly measured, the former can.  During that drift the lowest gold retreated relative to its 200dma was 17.7% over.

Extreme overboughtness based on the last five calendar years of trading starts at 18% over.  Gold stayed above that continuously from mid-October to late December on all but one single trading day, that 9.5% pullback bottoming in early November.  Gold averaged closing 21.1% above its 200dma across that entire fourth high consolidation, still extremely overbought!  So that sideways drift still had serious work left to do.

But it was suddenly short-circuited overnight into the Monday leading into Christmas week, on reportedly mania-like gold chasing over in China.  Gold blasted up another 2.4% on December 22nd, not only its first close besting mid-October’s peak but a decisive breakout over 2% above it.  After that gold powered up to two more record closes during Christmas week, last Friday’s incredible $4,528 fully 4.1% above that initial topping!

Despite being somewhat-suspect happening entirely in a low-volume holiday-shortened trading week, that threw the fourth-high-consolidation thesis into disarray.  While this bull’s prior three high consolidations had seen some marginal new record highs within them, they were isolated and less breakout-y.  This bull’s first three sideways drifts averaged 1.7 new record closes each within them, averaging 1.2% above their peaks.

And if gold’s fourth high consolidation was indeed scuttled only about halfway through its likely duration with much rebalancing left to do, does that put a big-and-fast drawdown back on the table?  Odds are it does.  Again gold’s next-ten-largest cyclical bulls since 1971 after today’s record monster averaged subsequent big-and-fast drawdowns of 20.8% over 2.1 months.  Something similar would be a serious reckoning.

If gold tracked that precedent script, we’d be looking at $3,586 around late February!  That would almost be a $950 plummeting, which would work wonders for restoring normal technicals and eradicating herd greed.  And boy that has mushroomed to crazy-extreme levels in recent weeks.  Naturally gold’s action is the linchpin of the entire precious-metals complex, while the rest of it often trades like gold sentiment gauges.

In the two weeks leading into gold’s latest all-time-record high, the yellow metal “merely” rallied 5.3% which is big but nowhere near parabolic.  That’s good, as more-extreme surges later necessitate more-extreme reckonings.  Yet in those same latest-terminal two weeks, silver and platinum skyrocketed a mindboggling 26.8% and 38.7%!  That sure reflects extreme greed permeating precious metals, emanating from gold.

A couple weeks ago I wrote an essay on silver’s near-parabola.  Based on decades of historical studies, I’d define parabolas as prices doubling within two-to-three months following massive bull runs.  That translates into a 33%-to-50% monthly-ascent pace, which gold’s second-biggest cyclical bull into January 1980 certainly hit at 48.6%.  In these last two weeks, silver and platinum rocketed at 65% and 95% monthly paces!

Their reckonings are going to be brutal after such vertical moonshots.  Maybe like a great center gold can weave though the defensive gauntlet around it.  But likely gold will be sucked into broader precious-metals selling, contributing to its own big-and-fast drawdown.  Only time will tell how this all plays out.  But make no mistake, gold is very risky way up here after staying continuously extremely overbought for fully 3.5 months!

A gold reckoning is certainly looming after such a monumental best-in-half-century year.  That’s very likely to unfold in 2026’s initial months.  It should be a 10%+ correction-grade selloff, formally slaying this epic record bull.  A real big-and-fast drawdown around 20% ought to take a couple months or so.  Yet gold could get lucky again and consolidate high, seeing sub-10% selloffs but drifting another four-ish months.

Either way ought to sufficiently rebalance away and normalize recent extreme technicals and frenzied herd greed.  Reckonings are healthy and essential for secular bulls’ ultimate longevity.  They are resets paving the way for more future gains.  With high odds for another imminent big-and-fast drawdown or high consolidation, speculators and investors must remain wary.  It’s foolish to buy into euphoric vertical surges.

If you are deployed in precious metals or their miners’ stocks, consider ratcheting up their trailing stop losses.  That will preserve more of their gains if gold soon rolls over materially.  And rather than joining this wild fear-of-missing-out momentum-chasing buying really-high, hold off until gold comes in some working off recent extremes.  Entry prices across the precious-metals complex will be considerably lower by then.

While it’s hard to fight the thundering herd psychologically and do the opposite, that’s necessary to buy relatively-low then sell relatively-high.  We’ve been specializing in this contrarian gold-stock trading in our newsletters for decades.  In 2025 alone we realized 60 stock trades averaging huge +119.9% annualized realized gains!  Since 2000 we’ve realized 1,621 newsletter stock trades averaging +20.4%, a stellar track record!

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The bottom line is a gold reckoning looms after its best year in nearly a half-century.  After soaring into extreme overboughtness fomenting great herd greed, gold really needs some rebalancing.  That should be a big-and-fast drawdown, which have averaged about 20% over a couple months after gold’s largest past bulls.  Such major selloffs rapidly normalize technicals and sentiment, leading to good buying opportunities.

But today’s monster record cyclical gold bull has proven remarkably agile in avoiding such drawdowns, instead consolidating high out of extremes four separate times.  Maybe gold will nigh-on miraculously manage another sideways drift instead.  Those are more gradual, taking longer to accomplish all the necessary rebalancing work.  Either way, gold is staring down the barrels of considerable weakness in early 2026.

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