Gold’s Remarkable Year

By Adam Hamilton

Gold truly enjoyed a remarkable 2024, relentlessly powering higher to many new records.  Gold achieved a rare monster-status upleg, which proved extraordinarily-unusual.  Big gains stacked up despite extreme overboughtness, speculators’ exceedingly-overextended gold-futures positioning, and American stock investors not yet chasing gold’s upside.  Several sources of major global demand coalesced for the heavy lifting.

For the past quarter-century, I’ve been in the contrarian-financial-newsletter business.  All day everyday I’m blessed to study the markets, actively trade mostly gold stocks, and share all my research and trades with our newsletter subscribers.  Few people in the world have been as deeply-immersed in gold and its miners’ stocks as I have.  Coming from this meticulous heavily-studied perspective, 2024 was totally unique.

One year ago this week, gold was trading around a then-nominal-record $2,075.  Some optimism was building, as in early December 2023 gold had just carved its first record close in fully 3.3 years.  Yet at $2,071, that certainly wasn’t materially better than early August 2020’s $2,062.  Incidentally gold’s run leading into that was its last monster-status upleg, soaring to 40%+ gains without any 10%+ corrections.

My first 2024 essay published back in early January was “Gold’s 2024 Breakout Upleg”.  It pointed out “New records generate bullish financial-media coverage putting gold back on investors’ radars.  They’ve always loved chasing winners, and will pile in to ride gold’s upside momentum.”  So I wrote “With record-chasing momentum buying kicking in soon, it’s hard to imagine this current upleg not at least challenging 25%.”

“If today’s upleg only matures to 25%, that would still boost gold way up near $2,275.  There will be many record closes between $2,077 and there, which will greatly boost bullish financial-media gold coverage and investor interest.”  A year ago $2,250+ gold for the first time ever seemed doable, but hopeful and nowhere near certain.  $2,050ish had been a graveyard in the sky for gold uplegs for several long years.

Indeed gold stalled early on, drifting 4.2% lower to $1,991 by mid-February.  The problem was American stock investors weren’t piling in to chase gold’s upside momentum, which was necessary to fuel major gold uplegs.  While gold was still a solid 9.4% higher from early-October-2023’s $1,820 upleg-birthing low, the combined holdings of the dominant GLD and IAU gold ETFs actually fell 3.8% or 48.2 metric tons!

These mighty American gold ETFs are the largest in the world by far, launched way back in November 2004 and January 2005.  According to the World Gold Council’s comprehensive global data, exiting 2023 GLD and IAU together commanded 39.6% of all the gold bullion held by all the world’s physically-backed gold ETFs!  A UK gold ETF at merely 6.9% was a distant third.  Gold’s fortunes often depended on GLD and IAU.

These dominant gold ETFs are a conduit for the vast pools of American stock market capital to slosh into and out of gold.  When American stock investors flood into GLD and IAU shares faster than gold is being bought, their prices threaten to decouple from gold’s to the upside.  So their managers have to issue sufficient new shares to absorb that excess demand, using the proceeds to buy more gold bullion.

GLD and IAU gradually grew popular in the late 2000s, and since then gold has rarely achieved a major upleg over 25% without big capital inflows into them.  And a monster 40%+ gold upleg not driven by huge GLD+IAU holdings builds seemed impossible.  Gold’s last two monster uplegs both crested in 2020, at enormous 42.7% and 40.0% gains.  American stock investors piling in overwhelmingly fueled both of them.

During the first before March 2020’s pandemic-lockdown stock panic, GLD+IAU holdings soared 30.4% or 314.2t.  Then in the second blasting higher out of that extreme-fear event, they skyrocketed a gargantuan 35.3% or 460.5t!  Had I known a year ago that American stock investors would totally ignore gold in 2024, I would’ve been way-less-bullish.  Gold-futures speculators could push it higher, but their capital is quite finite.

Gold’s record-momentum-chasing dynamic failed to kick in this year because American stock investors were enthralled by the AI stock bubble.  Gold has always been the leading alternative asset, the ultimate portfolio diversifier.  Investors are most open to allocating more capital to gold when stock markets are weakening on balance.  But in January and February, the flagship S&P 500 achieved fully 14 record closes!

Yet despite American stock investors being missing in action from gold, it rocketed higher in early March.  On that month’s opening couple trading days, gold surged with 2.0% and 1.6% gains to new records of $2,083 and $2,115!  Speculators stampeded into gold-futures longs after a top Fed official’s speech seemed to hint at new quantitative-easing bond monetizations possible, which was likely misinterpreted.

Specs bought an astoundingly-huge 55.0k long contracts that week, the fourth-highest ever witnessed!  In seven trading days starting with that speech, gold surged 6.8% to $2,181.  Despite those seven record closes in a row, American stock investors didn’t care.  In mid-March, GLD+IAU holdings still slumped to a shocking 4.5-year secular low!  Who needed gold when euphoric AI stocks were rocketing parabolic?

Yet gold kept blasting higher anyway, achieving twelve more nominal record closes into mid-April way up at $2,388.  But neither American stock investors nor gold-futures speculators were doing any meaningful buying!  With gold’s usual drivers not explaining its record-shattering surge, we had to wait for the World Gold Council’s outstanding quarterly Gold Demand Trends fundamental reports to gain key insights.

Released about a month after quarter-ends, these GDTs offer the best-available global gold supply-and-demand data.  Q1’s and Q2’s revealed strong demand from Chinese investors and central banks.  I wrote about this in a mid-April essay on gold’s remarkable breakout.  Straddling March and much of April, this is readily apparent in this gold chart.  Gold’s young upleg had already achieved mighty 31.2% gains by then!

With American stock investors refusing to play, gold’s upleg should have fizzled out around 25% gains or $2,275.  But Chinese investors were flocking to gold because their own markets were collapsing.  From mid-February 2021 to early February 2024, the leading US China-stock ETF plummeted 62.9% reflecting a brutal bear market in Chinese stocks.  Many government interventions failed to staunch that bleeding.

While Chinese stock markets burned, an ongoing multi-year real-estate bust following a bubble heaped on the financial pain.  That along with China’s laws preventing investors from moving capital offshore left gold a fantastic safe-haven alternative.  Chinese investors flooded in, fueling frenzied buying resembling something of a popular mania.  Central banks were also big gold buyers, partially on momentum-chasing.

Central bankers in charge of allocating reserves are human too, susceptible to the same herd greed and fear all investors face.  But central banks also increasingly worried about their hugely-outsized holdings of US dollars.  The dollar was being rapidly devalued through mind-boggling US-government overspending, as well as being weaponized geopolitically against Washington’s foes.  So central banks remained major buyers.

The WGC’s data on central-bank and Chinese consumer gold buying is interesting.  The Q3’24 GDT is the latest published, with Q4’s a month or so out.  While these global demand sources were strong, they didn’t soar making gold’s 2024 even more remarkable.  During the first three quarters of this year, central banks reported adding 305.2t, 202.2t, and 186.2t.  The five-year quarterly average ending 2023 was 172.1t.

Yet that central-bank buying totaling 693.5t in the first nine months of 2024 was still down 16.8% YoY from the comparable 2023 span!  But realize the WGC can only document reported buying.  Some central banks led by China’s don’t like to disclose their official gold buying.  That tips off traders, who can front run central banks driving up gold prices leaving worse entries.  So central banks don’t report all buying.

Chinese consumer demand was similar, tracking at 308.9t, 174.3t, and 173.4t in the first three quarters of 2024.  That compares to a prior-20-quarter average of 215.9t.  And during the first nine months of this year, overall Chinese demand also slumped 7.9% YoY to 656.6t.  So though that remained strong, it certainly didn’t soar to lofty extremes.  The more measured gold buying, the longer its potential staying power.

Gold’s massive breakout surge into mid-April left it exceedingly-overbought.  One way to quantify that is looking at gold relative to its baseline trailing 200-day moving average.  At $2,388, gold had stretched an extreme 18.8% above its 200dma!  That was the most overbought gold had been since August 2020 fully 3.7 years earlier, when its last monster upleg crested.  Extreme overboughtness usually portends big selloffs.

When gold rallies too far too fast, too much popular greed is generated.  Rushing to chase those rapid gains, soon all willing near-term buyers are fully-deployed.  With buying exhausted, sellers take the upper hand forcing sizable selloffs to rebalance sentiment and technicals.  Those often cascade to correction-grade 10%+ ones, sometimes challenging 20%+ new bears.  Case-in-point was that August-2020 topping.

After similar extremely-overbought levels, gold suffered a major 18.5% correction over the next 7.0 months!  So in mid-April 2024, gold’s mighty upleg faced high risks of rolling over into a serious 10%+ selloff.  Yet remarkably it didn’t.  Sometimes rather than selling off, big price surges can be digested by a slower high consolidation.  Prices simply mostly grind sideways long enough to gradually work off greed.

Gold largely drifted into mid-May, remaining extremely-overbought and even making a couple new record closes.  At $2,424 then, gold was still stretched 17.8% above its 200dma.  The extreme threshold over the last five years starts at 15%+.  While gold did start selling off from there, that culminated in a mere minor 5.7% pullback into early June!  Gold’s major new highs were holding despite no American stock investors.

Gold resumed rallying in July and August, achieving another six nominal record closes.  By late August, gold’s upleg had grown to 38.7% just shy of monster status.  Yet again astoundingly in that span, those combined GLD+IAU holdings actually fell 4.4% or 55.8t.  Nothing like that had ever happened before in this modern gold-ETA era, it was truly remarkable!  Another big source of global demand had ramped up.

After the Chinese, Indians are the second-largest gold consumers.  As gold has always had a venerated place in Indian culture, they are studied and shrewd buyers.  Unlike most investors who prefer to buy high and chase upside momentum, Indians love bargains.  Despite gold’s record prices, they got some major artificial price cuts.  In late July, India’s government slashed its gold-bullion import taxes from 15% to just 6%!

That was done to boost that country’s important domestic gold-jewelry industry.  After those taxes stayed above 10% for more than a decade, their biggest cut ever motivated Indians to buy.  Per that latest WGC GDT data, Indian consumer gold demand in Q1, Q2, and Q3 this year ran 139.0t, 149.7t, and 248.3t.  That latest-reported quarter surged way above the prior five years’ quarterly average of 173.5t on cheaper gold.

During 2024’s first nine months, total Indian gold demand climbed 8.5% YoY to 537.0t.  That compares to again 656.6t from Chinese consumers and 693.5t from central banks.  So the identifiable big global gold demand fueling gold’s monster upleg this year was fairly-evenly-split.  Gold-futures speculators did the equivalent of 307.7t of buying in 2024’s first nine months, while GLD+IAU holdings somehow fell 35.4t!

No thanks to apathetic American stock investors, gold continued powering higher in September seeing another eight record closes.  Mid-month that upleg achieved 40%+ monster status, and a couple weeks later gold’s gains grew to 46.8% at $2,671.  But another dangerous milestone had been reached, so I warned about gold’s high selloff risks.  Extreme overboughtness was part of that, with gold 17.3% over its 200dma.

But the bigger worry was speculators’ gold-futures longs had soared to their fifth-highest levels ever way up at 441.0k contracts!  415k is recent years’ secular resistance, around where these hyper-leveraged traders exhaust their available capital firepower for buying gold futures.  By all rights, near-record spec longs and extreme overboughtness should’ve pummeled gold into an imminent upleg-slaying correction.

Remarkably that not only didn’t come to pass, but gold resumed rallying after a trivial 2.4% dip.  Then it forged even higher into record territory in late October, again stretching an extreme 18.3% above its 200dma.  That extended gold’s total monster upleg without a single 10%+ correction to enormous 53.1% gains over 12.9 months!  Astoundingly GLD+IAU holdings still slipped 0.4% or 5.1t during that entire span.

Had someone predicted something like that a year ago, I would’ve scoffed saying it was impossible.  A giant monster gold upleg defying extreme overboughtness and near-record spec gold-futures longs with virtually no participation by American stock investors?  No freaking way, when pigs fly!  Yet here we are.  In my 25 years studying markets and gold all day everyday, I’ve never witnessed anything remotely like this.

Gold was certainly overdue for another larger rebalancing selloff in late October, which got underway before the elections.  Trump’s decisive victory surprised many, and traders assumed his tax cuts and tariffs would lead top Fed officials to slow their new rate-cutting campaign.  So the US dollar which drives much gold-futures trading soared, driving some heavy selling in that realm.  I analyzed all this a month ago.

Thus gold suffered another selloff into mid-November, clocking in as a larger 8.0% pullback from $2,786 to $2,562.  Gold bounced strongly out of that latest interim low, leaving it looking like a bottoming.  And since that selloff didn’t cross that 10%+ correction threshold, gold’s monster upleg remains alive and well!  It has not yet given up its ghost, and may power higher still.  That latest pullback worked off much overboughtness.

Gold plunged from that extreme 18.3% above its 200dma to just 7.1% over in mid-November, then again to only 5.4% above after mid-December’s latest Fed decision.  Despite an apparent big hawkish surprise testing gold’s monster upleg, it held strong.  Though gold plunged 1.9% to $2,593 on top Fed officials’ projecting slower rate cuts ahead, it remained way above correction territory which starts down at $2,507.

So with 2024 winding to a close, gold has soared an awesome 26.9% higher year-to-date.  Though you’d never know it from American stock investors, that slightly bested the S&P 500’s parallel 26.6% bubble gains!  Gold achieved 41 nominal record closes this year, and is revaluing to much-higher prevailing price levels.  Gold’s price action has truly been remarkable in 2024, utterly unprecedented in several key ways.

While a correction is inevitable sooner or later, gold’s outlook remains quite-bullish.  The main reason is American stock investors have yet to start chasing this monster gold upleg.  They control vast pools of capital dwarfing all others in the world.  Again gold’s last two monster uplegs cresting in 2020 averaged 32.9% or 387.4t GLD+IAU holdings builds!  Since today’s upleg was born, those are running -0.9% and -11.4t.

If American stock investors do enough differential GLD-and-IAU share buying in 2025 to force another 400t+ build, gold is heading much higher!  And with their capital allocated to gold effectively zero, that’s not a tall order.  There’s actually a simple proxy for this, dividing the total value of GLD+IAU’s gold bullion by the total market capitalization of all the S&P 500 stocks.  The latter is running near $54,131b midweek.

Yet the 1,266.5t of gold held by these dominant gold ETFs is worth less than $107b, implying American stock investors are less than 0.2% allocated in gold!  That will likely change as this AI bubble inevitably bursts, and investors remember the wisdom of prudently diversifying their tech-stock-heavy portfolios.  If they go to 0.5% or 1% or 2% gold, this gold bull will power way higher!  Historically 5% to 10% was normal.

Also bullish for gold, the US dollar’s bear market will almost certainly resume in 2025.  The benchmark US Dollar Index has been blasting higher in recent months in a powerful bear-market rally, fueled by expectations of slower Fed rate cuts.  But that outlook will change with major economic data, eventually reversing the dollar lower which will spawn gold-futures buying.  Geopolitics ought to boost gold as well.

If Trump’s huge proposed tariffs are implemented, other countries including China will retaliate financially.  That will likely include dumping US Treasuries and US dollars, and some of those proceeds will flow into gold further eroding the dollar.  The higher gold climbs, the more it will tarnish the US dollar’s international reputation and pressure Washington into slowing its insane drunken-sailor-levels of government spending.

With gold almost certainly revaluing to much-higher levels than past years indefinitely, the gold stocks have massive catch-up rallying left to do.  They are big bargains, lagging gold’s monster upleg this year.  The fundamentally-superior smaller mid-tier and junior gold miners we specialize in trading are enjoying enormous high-double-digit and even triple-digit year-over-year earnings growth, to their fattest profits ever!

Absurdly the benchmark GDX gold-stock ETF is only up 10.8% year-to-date, far behind gold’s 26.9%.  Usually the major gold stocks dominating GDX amplify material gold moves by 2x to 3x.  That implies 106% to 159% GDX gains in a 53% gold upleg!  As of mid-December, we’ve realized 79 gold-stock trades in our newsletters this year averaging fantastic 45.4% annualized gains!  And far-bigger gold-stock upside is likely.

The bottom line is gold just enjoyed a truly-remarkable year.  Gold powered higher in a massive breakout, achieving a rare monster upleg with dozens of new record closes.  Incredibly that was despite American stock investors enthralled by the AI stock bubble totally sitting out, multiple bouts of dangerous extreme overboughtness, exceedingly-overextended near-record spec gold-futures longs, and a powerful dollar rally!

While any one of those could have easily scuttled this gold upleg early or slayed it later, they didn’t.  Big global demand from Chinese investors, central banks, and Indian jewelry buyers overcame everything.  While that ought to remain robust in 2025, American stock investors are still likely to return which would drive gold much higher.  Miners’ stocks should prove the biggest beneficiaries as they normalize with their metal.

Adam Hamilton, CPA

December 27, 2024
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