Gold News

$2400: Gold's Tulip Moment?

Anyone know why gold prices jumped? Anyone know what comes next...?
"AT THIS POINT we know almost nothing," said one pundit on the social-media platform formerly known as Twitter following Iran's attack on Israel over the weekend, writes Adrian Ash in this note first sent to Weekly Update readers on Tuesday.
"Yet we have some certainties. On Monday, oil and gas prices will skyrocket."
But no. You were right the first time: No one knows anything...
...and rather than regaining late-Friday's $100 plunge and setting new all-time highs above $2400, the gold price failed to jump as Asia and then Europe opened the new week.
Oil also failed to jump, falling back below $90 per barrel of Brent crude having surged by more than 1/5th so far this year.
But knowing little-to-nothing about the present, never mind the future, rarely stops anyone pretending otherwise.
Cue bank and brokerage analysts to revise their gold price forecasts frantically higher...
Chart of the gold price in US Dollars. Source: BullionVault
...some far better informed, careful and more thoughtful than others.
$2200 full-year average in 2024 says Swiss bullion refiner and finance group MKS Pamp, raising its "mildly bullish original forecast" of $2050 by 7% to "outright bullish" at $2200 because Western central banks seem "willing to accept higher for longer inflation amidst solid physical demand" for gold.
$2500 in the 2nd half of 2024 says US financial giant Citi, banking on the Federal Reserve kick-starting rate cuts across the West (and a jump in gold worldwide) this summer, something which Monday's surprise jump in US retail sales data appears to have killed.
$2700 by year-end says US investment bank Goldman Sachs, blaming "fear" of financial and monetary chaos for its new gold forecast. So why stop there?
$3000 in 2024 says Bank of America, pointing to "central banks, Chinese investors, and a growing number of Western buyers." The first 2 groups are well known if you read these Updates and GoldNews. More on the 3rd group in a moment.
$4000 in 2-3 years says Swiss bank UBS, looking at 3 previous jumps in the gold price and saying that "if history repeats, it's not too late to participate."
Given that I know nothing, I'll back that $4000 forecast from UBS, not least on its timeline of "sometime in the future".
But the word "if" is doing a lot of work in that projection. Because history does not repeat. It can't.
Things that have already happened have already happened. No set of circumstances can ever return, most surely not in its entirety. And while history might rhyme, the refrain is likely to be brief, if not a descant.
So what echoes can we hear today? Let's strain our ears and listen in...
May 2006: Gold surges 28% inside 7 weeks, hitting $730 per Troy ounce, the highest since the all-time highs of New Year 1980. Pundits point to firm oil prices and a falling Dollar. Yet interest rates in the bond market (against which gold tends to move inversely) are actually rising, and gold in UK Pounds sets a new all-time high above £380.
Echo? Like this jump so far, no one really knows what drove gold's 2006 spike. All the usual gold models and correlations fail to make sense.
August 2011: Western economies hit the end of the world and their financial crisis peaks with England's worst rioting since the 18th Century, the USA's credit rating getting cut from triple-A, and debt-torn Greece risking social collapse across the Eurozone. Fear and panic grip investors, government and the media. Gold surges to $1900, up by 1/5th from 6 weeks before.
Echo? Sundays are typically quiet on BullionVault, but the Order Board remains open, ready for you to trade. And last weekend, here in April 2024, saw the heaviest Sunday demand for gold, net of customer selling, since 7 August 2011.
Spring 2013: Having risen almost non-stop since the start of the Millennium, gold hits the biggest price crash of modern times as the financial markets decide that the banking crisis is over. The crash cuts $1 trillion off the value of all the gold ever mined in history in just 2 days, and it cuts the price by 25% in 3 months. 
Echo? Western investors should have sent a big 'Thank you' letter to Chinese households a decade ago for stepping in to buy the metal they no longer wanted. Now China has been hoovering up gold as Western investors sell once again. Only this time, the price has risen 17% inside 3 months instead of losing a quarter.
Put it all together, you can see...there really isn't any precedent for gold to behave like it's been moving this spring.
Some aspects echo a bull market spike and top. Other aspects echo the precious metal's worst ever sell off. But that's only because that huge sell-off by Western investors spurred huge buying by price-wise Chinese households. Whereas the tables have turned entirely in 2024 to date...
...alongside an awful war in the Middle East, ongoing slaughter in Ukraine, a rebound in commodity-price inflation, record and ever-mounting Western government debts, a breakdown in US political dominance worldwide, plus repeated expectations for Western central banks to start cutting interest rates.
What happens next? No one can know.
So here instead is a photo of tulips in bloom, plus one (a Semper Augustus maybe?) already past its best.
Tulips in bloom outside the BullionVault office
These snaps come from outside the BullionVault office.
The contract gardeners do a wonderful job...
...ensuring a little loveliness in well-kept beds and boxes amid the concrete and asphalt of Hammersmith, West London.
Each spring, there's always a great show of tulips, that beautiful memento mori for any investor enjoying a bull market.
No doubt you know about the 'Tulip Mania' of 17th Century Holland. You might know that it's something of a myth too. But true or not, the lessons are plain.
  • No bull market lasts forever;
  • Speculation jumps when the fundamentals run out;
  • There are no prizes for being the last person to buy or bet on more gains.
Is that where gold sits today? Past its best, and about to drop its petals?
First, last Friday's huge spike through $2400 clearly marked a blow-off top for gold short term. But while gold briefly rediscovered gravity on Monday's strong US retail sales data, the bullion market then rebounded, suggesting that the date of the Fed's first rate cut matters far less than the return of inflation or the geopolitical drivers.
Second, what started as a jump on central-bank buying and then China's massive household investment became all about the Middle East last week, with speculation in Shanghai and London derivatives sending the gold price 5% higher with another run of new all-time highs.
Short term it looks like that boil has been lanced. The US and the UN are pleading for de-escalation, and Tehran itself says the matter is 'concluded for now'. But while that has left gold without new speculation to recover last Friday's spike through $2400, the baseline remains strong geopolitical stockpiling plus continued investment-insurance demand from China's private sector.
More clearly, the level of speculation through US Comex futures and options remains way below anything screaming 'Tulip!'...
...last Friday's spike in gold options volume notwithstanding.
Chart of Managed Money's net speculative long position in Comex gold futures and options. Source: BullionVault
Indeed, the net speculative position of hedge funds and other 'Managed Money' players was virtually unchanged in the 7 days ending Tuesday last week (currently the latest data available)...
...and it actually fell as a proportion of all Comex gold derivatives contracts now open...
...down to 20.7% from the prior week's 4-year high of 22.3%.
That's barely in the top one-third of most over-excited weeks since the current data began in mid-2006, and it's well below the 2009 or 2016 peaks of net spec longs running above 30% of Open Interest on regulator the CFTC's data.
Third, and most notably, this pullback is finding strong buying among Western investors, extending the upturn we've already seen so far this month.
April has marked the strongest month-to-date since March 2022 for first-time precious metals investors on BullionVault. Last week saw positive net demand for gold on our trading exchange for the first week in 13.
A gold rush at last? Not quite.
This straw in the wind marks a turnaround from the record-heavy profit-taking of 2024 to date. That selling, for a profit, has made this run of record gold prices very different from any bull market I've ever seen before. Because, without wishing to be rude dear reader, investment manias don't peak with private investors sitting it out, taking profits, or merely tip-toeing in.
None of this is to say gold can't and won't drop and keep dropping from here. No one can see the future, and no one I know has yet figured out exactly what or who has been driving this surge in gold prices anyway.
But since the price kicked higher at the start of March, this surge remains modest compared to gold's monster blow-offs across the past 60 years, trailing the 13 biggest moves on a percentage basis despite setting record runs of new record gold prices.
This steady if not stealthy move is, in a word, unique. Peace and love meantime show no sign of breaking out soon. Western stock markets have begun slipping. Western investors remain much lighter in gold than they were only at the start of the year, never mind 12 months before.
What happens when that starts to turn around? Which maybe it has?
As for the 3 echoes of a distant time we heard above, the 2013 crash so loved by Chinese consumers proved only a way-station on the road to gold almost halving by the end of 2015 from its 2011 top...
...a peak which itself had gone as fast as it came in that hectic summer of debt downgrades and riots, and which then stayed unbeaten until the Covid catastrophe of summer 2020.
As for gold in spring 2006...the sudden pop no one could gave back all of those 6-week gains within 6 weeks as well. It wouldn't beat that top for more than a year...
...not until the global credit crunch took down UK mortgage lender Northern Rock, marking the start of the global financial crisis.
The ultimate high in that decade-long move then came 4 years later again, some 160% higher.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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