GoldNuggets — Shaken, not Stirred
Shaken…
One key observation is that heading into the recent gold $Barrick Gold Corp(GOLD)$ price peak we saw speculative futures positioning reach near-decade highs, surveyed sentiment go full-consensus bullish, and ETF flows surging.
In those conditions after an already extended run it’s a natural market process to see some kind of period of indigestion; and it looks like that is precisely what we are seeing now: an initial shakeout in positioning has occurred.
Valuations
On a similar note, and making it a little more of a dangerous situation than simply a healthy correction is that the valuations indicator reached extreme expensive levels.
The Big Breakout
Having said that, there are still many powerful tailwinds in force behind gold. And the big breakout is still an important piece of information.
Most notably looking back at the 2005-11 bull run, there were many selloffs, corrections, and periods of consolidation and digestion along what was otherwise a glorious bull market. So we should expect nothing less than the same for this one.
Investor Allocations
Another thing is that while investor enthusiasm did pick-up notably in recent weeks and months, if you look at implied investor allocations to gold (and the various surveys and anecdotes, which confirm), there’s still a lot of room to move and overall most investors remain under-allocated to gold.
Debt Dynamics
Lastly, and perhaps timely given the Moody’s downgrade of the US sovereign credit rating + the Big Beautiful Bill (tax cuts) …and not to mention Tsy Sec Bessent comments around growing their way out of debt — it looks like fiscal policy is going to remain bullish for gold.
n.b. when it comes to growing your way out of debt, the key point to emphasize is that it’s all about *nominal growth* (i.e. real GDP growth + inflation). While it can be hard for governments to drive sustainable real growth, driving nominal growth up tends to be a little easier, and ultimately amounts to debasement, monetary (+fiscal) expansion and downside risk for bonds (and upside risk for things like gold, stocks, and even bitcoin).
So even as there are credible downside risks to gold from a traditional market analysis standpoint, the macro upside risks for gold (and downside risks to traditional diversifiers) means it still has an interesting and important role to play in asset allocation.
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