So gold hit another all-time high yesterday. Shocking, right? At this point, gold setting records is about as surprising as your friend posting another gym selfie – it’s happened over 30 times this year alone.
But here’s where it gets interesting (and slightly terrifying if you’re a goldbug): history suggests this party might be winding down.
The Buzzkill Data
Lucas Downey, a quant wizard who actually knows what he’s talking about, ran the numbers on gold’s recent rampage. The SPDR Gold Trust (GLD) has jumped nearly 14% in just 24 trading sessions, with its RSI (think of it as gold’s fever thermometer) running hotter than a crypto bro’s Twitter feed at 80+.
When Lucas looked back at similar gold frenzies since 2004, he found 13 instances where gold was this overbought. The aftermath? Not pretty:
- 1 month later: -1%
- 3 months: -3%
- 6 months: -3.5%
- 12 months: -3.2%
“Sorry, bulls, pain cometh,” Lucas noted with the kind of brutal honesty we need more of in finance.
But Wait, There’s More (Good News)
Before you panic-sell your gold coins, let’s talk about why this might just be a breather, not a breakup.
First, central banks are hoarding gold like it’s the last iPhone on Black Friday. They’ve been buying over 1,000 tonnes annually for three straight years – that’s about $121 billion worth at current prices. Why? Because everyone’s trying to reduce their dependence on the dollar (awkward for us Americans, but understandable).
Second, real yields are still pretty pathetic when you account for inflation. Sure, you can get some return on Treasuries, but after inflation eats its lunch, you’re not exactly getting rich.
The Stock Market Plot Twist
Here’s where it gets really interesting. Eric Fry, who’s been making money off gold longer than most of us have been alive, points out something crucial: expensive stocks often lead to gold rallies.
When stocks are in the highest valuation decile (fancy talk for “really freaking expensive”), gold has historically rallied 52% over the next five years. When stocks are cheap? Gold drops 4%.
And guess what? Even Fed Chair Jerome Powell admitted yesterday that “equity prices are fairly highly valued.” The market immediately threw a tantrum and sold off, because apparently honesty is still shocking in finance.
The Bottom Line
Yes, gold might take a breather – that RSI reading is screaming “chill out” louder than your mom when you’re home for the holidays. But the bigger picture still looks pretty golden (sorry, had to).
Between central banks buying everything in sight, real yields that barely beat inflation, and a stock market that’s priced like it’s already colonized Mars, gold’s long-term story remains intact.
Just maybe don’t expect it to keep setting records every other Tuesday. Even gold needs to catch its breath sometimes.