The Trend Is Your Friend
Investors shouldn’t give up on the gold bull just yet. For U.S. investors, the trend continues to be your friend. Gold is an inflation hedge and my inflation expectation indicator staged an upside breakout in April. It remains above the breakout level and the trend is rising, albeit in a choppy manner. Much of the realization of higher inflation depends on the effects of tariffs. The June FOMC minutes showed a consensus about higher inflation, though a split is appearing about the timing and magnitude of the effects:
In discussing their outlooks for inflation, participants noted that increased tariffs were likely to put upward pressure on prices. There was considerable uncertainty, however, about the timing, size, and duration of these effects…
Outside the U.S., a World Gold Council survey of central banks shows increasing demand for gold in their reserves.
Central bank reserve accumulation has been so strong that, according to the European Central Bank, gold is now the second latest reserve asset when valued at market prices.
At the same time, data from the New York Fed shows that foreign central banks have been shrinking their USD exposure, which poses a headwind for the USD Index.
The trend is your friend.
The Trend Isn’t Over
The trend isn’t over. Estimates of the allocation in investor portfolios is still low by historical standards. Public sentiment has a far way to go before it’s all-in on gold.
Gold is also holding up on its relative breakouts against the S&P 500 and the 60/40 asset mix. The relative breakout against the 60/40 fund is especially significant as it highlights the metal’s importance in diversification effects and the reduced diversification effect of bonds in an environment of rising inflation expectations.
A tactical analysis of gold mining stocks (GDX) shows the group is testing an uptrend, while the 14-day RSI (top panel) approaches the 40 level where these stocks have bounced in the past. The bottom two panels show long-term technical conditions to be overbought, which I interpret as the “good overbought” conditions that accompany a sustained advance.
In summary, gold prices are consolidating after an advance. In the absence of serious technical breaks, I are inclined to give the bull case the benefit of the doubt.
Time for Diversification?
Callum Thomas of Topdown Charts recently suggested that it may be time for investors to diversify into other commodities in light of the relative price performance of gold against other commodities.
I am sympathetic to the long-term case for diversification, but I believe it may be too early from a tactical trading perspective. In order for gold to lag other commodities, the global economy needs to see a cyclical rebound, whose signs are not evident.
Similarly, a review of the performance of selected cyclical industries shows that most cyclical groups are tracing out relative bottoms against the S&P 500. With the possible exception of infrastructure stocks, none are showing signs of sustainable market leadership.
In conclusion, I remain a gold bull. Gold prices are consolidating after strong gains in H1 2025, but the trend is still up. Bullish sentiment isn’t stretched and central bank buying provides long-term demand. I am sympathetic to the suggestion that it’s time to diversify into other commodities, but the idea is only a trade set-up as commodity outperformance of gold requires a cyclical rebound, which is not evident at this time.
History rhymes. About 1000 years ago the Templars set up a very successful banking system, by holding gold in different locales…so people could travel without fear of losing their gold. Is it rhyming? Central banks buying gold to set up their own “gold window” to settle accounts for those who are unable or might become unable to trade in USD? If the price of gold in USD goes up, the % of reserves in USD goes down. It would be hard to build a firewall around gold. Right now, my guess is gold continues to consolidate, likely between 2800 and 3500. When will the next euro crisis happen? No idea, but there will be one someday, which likely will boost the USD.
As long as the US runs huge deficits, along with the rest of the world, gold should go up. But if they find a good way to get gold out of seawater, there are several cubic miles of the stuff there. I’m not worried about that at the moment.
There are too many saying how gold will go up for me to think the next breakout is imminent.
Europe is fracturing, little by ilttle. All the issues are piling up. No recourse. Now you see Germany and Poland are into illegal immigrant issue at their borders. The historical Silesia issue after ww2 will rise again. The slaughtering of millions of Germans during repatriation is on the same scale of Nazi slaughtering of Poles. In a nutshell Europe is just too complicated to have a unified system.
Your thoughts on iShares 20+ Year Treasury Bond ETF (TLT), Cam? Good buy now?
Technically it looks ok but I worry about inflation expectations rising from tariff implementation.
On a related topic it is interesting to see that silver and silver miners have just broken out from a nice 5 week consolidation. See SLV, SIL & SILJ etfs.
Also on a not-so-related topic, but still in the commodities area it is interesting to note that coal broke out a week ago from a solid base that went back to April. See COAL etf.
Metals are rising: silver, platinum, palladium, … It is part of material sector breaking out Wed before last week, although most people are paying no attention to this sector. Instead they are chasing ARKK, cryptos, AI, … Inflation is finally finding its way to material sector. Second half of this year, we should pay a little attention to this sector.
SP metals and mining, XME, finally had a momentum thrust last Thu and Fri to ATH. A rare signal to note.
On a paralell path, coal, in the material sector, will rise together with natgas, nuclear, renewables, etc because Trump admin has now opened the door to all energy resources to power additional energy consumption by AI inference. Its usage is exploding like we have never seen in human history. Out on a tangent inference only needs less powerful GPUs so AMD, always at cheaper pricing, should be able to grab a nice piece in competition with Nvidia’s secondary products. But the money is still in storage, networking, and memory for hardware side, and the one and only TSMC.