Why You Can't Trust This Gold Price Rally
A break below $3,000 could shock the bulls and send the asset price sharply lower.
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Tuesday's metals rally feels suspect to us.
For starters, it was probably made possible by silver futures price-squeezing during an abbreviated and thinly traded holiday session. The CME Group generally keeps the metals markets open for the overnight session and into the morning hours of a holiday, despite the New York Stock Exchange and bank closings.
As you can imagine, futures traders caught on the wrong side of large price moves are forced to cover their positions because they can’t wire funds to meet margin calls. Once this process starts, it gains momentum and becomes a wrecking ball, much like what we have seen in gold and silver since Friday’s close.
Silver
We don’t talk about silver often because it is one of the most difficult markets to trade in, but we believe it is leading gold futures higher today, so we will mention it.
Silver is a true feast-or-famine marketplace. I can honestly say that I’ve seen people make a lot of money in a short amount of time in silver, but I don’t recall anyone ever keeping it.
Even non-leveraged buy-and-holders probably haven’t enjoyed themselves over the last two decades.
Those who bought silver in 2019 or 2020 have fared well, but even so, it has been a rocky ride of tied-up capital without generating cash flow. Those who bought the frenzy in 2011 might still be underwater on their investment. So, when you read or hear headlines such as “silver is at the highest price since 2011,” it shouldn’t be considered a positive. This means the market hasn’t made real progress in over two decades.
The silver market has officially broken out and will likely see $44.30, but we aren’t convinced $50.00 is in the cards. Even so, if you are trying to buy here, the odds are that you are late to the party. If you are trying to sell here, you could get your head ripped off before the position works out. Being sidelined in silver is probably the best place to be. In any case, how the silver chart resolves itself will likely guide the gold market.
Gold
As bullish as the current market looks and feels for gold, the buying appears to be driven by artificial sources, such as a boost from the silver breakout, combined with buy-stop order running while the banks are closed.
For instance, the U.S. dollar and gold have been negatively correlated 85% of the time over the last 180 trading days, yet now they are both soaring in unison. This is probably an outlier, not a change in the relationship.
Lastly, when looking over the last 15 years' worth of data, the December gold futures contract has a strong tendency to roll over in the days following the last trading day of the August futures contract. In other words, on or about September 3, gold has generally run into selling.
Everything is bigger and better in a post-pandemic stimulus world, but the bombastic gold rally is following in the footsteps of the 2011 market, in which a parabolic rally soured.
To be fair, this condition has persisted for several months without any meaningful pullback taking place, and we have taken a lot of criticism for that, but that doesn’t necessarily mean the outcome will be different.
Tuesday's high was marked by a monthly trendline that started from the 2011 high and has been formed by the April 2025 high. This, along with bearish seasonals, relatively high interest rates being paid by low-risk treasuries, and a higher dollar (in our anticipation), should keep the rally in check.
If so, even a pullback to $3,000 wouldn’t negate the bull market. But a break below $3,000 could shock the bulls with a round trip toward $2,000! While this might seem unlikely due to extreme bullish pricing and sentiment, 40% corrections in gold are eventually inevitable. It is only a safety asset until it isn’t.
