Gold News: Analysis Shows Gold Rally Based on Reality, Not Irrational Exuberance

Gold Hits $5602 as Record-Breaking Rally Enters Uncharted Territory

Spot gold hit another record high at $5602.23 on Thursday before pulling back to just above $5520. Nearly every day I open with the same sentence, just different numbers, because that has been the pattern. This is what happens when a market enters uncharted territory—some buyers probe the upside and take offers with no fear of a stopper, while others are tentative, knowing they may be the one that prints the record high.

At 13:58 GMT, XAUUSD is trading $5511.16, up $92.61 or +1.71%.

Why This Rally Isn’t Irrational Exuberance—It’s Fundamentally Sound

Despite the steep climb and the gradual ratcheting up of prices as they pull away from established trendlines, this rally at times feels like “irrational exuberance,” but it’s not. Just because we’re seeing something that we haven’t seen before, or may be missing out on perhaps one of the greatest rallies of all time, is no reason to downplay the move. Especially since this rally is based on sound fundamentals.

This gold rally started with years of base-building, and now we are seeing the fruits of patience and waiting for all the key events to line up for a spectacular rally.

The 1979-80 Comparison Doesn’t Hold Up—Here’s Why

I’ve noticed a lot of chart comparisons going on lately on the internet. Some are comparing the current rally to the 1979-80 rally and collapse, but I’m actually old enough to know that what you may be reading is far from what actually took place. In those days, at least prior to December 31, 1974, U.S. citizens weren’t even allowed to buy gold. So that initial surge was new money coming into the market. In fact, 1979-80 came even before the stock market made a major bottom in August 1982, launching the greatest bull market in history.

From Hard Assets vs. Paper to Cross-Asset Money Flows

We used to say in those days that you either own hard assets or you own paper. In other words, gold and stocks were negatively correlated, but somewhere over the last 40 years, that way of thinking stopped with the thought that nearly everything is an investment and not necessarily a hedge against the worst of times. Now we have money flowing across asset classes with the speed of light. Sometimes I think investors don’t take profits and move into cash like they used to, but instead they take profits and look for the next investment.

Central Bank Buying: The Foundation Supporting This Rally

The bottom line is, there is plenty of money out there to continue to support this gold rally, although I accept the fact that we could see periodic corrections that look ugly. Money can flow from crypto products or stocks into gold fairly easily with the push of a button today. Investors are buying gold for sound fundamental reasons including dollar devaluation, relatively low interest rates, and simmering geopolitics. I get it that we have some buying the precious metal because of momentum or the fear of missing out (FOMO), but that’s just because there are many players in the market today. But this rally has been primarily supported by solid central bank buying. I don’t think it will end until they decide to pull the plug.

More Information in our Economic Calendar.