Gold’s “getting bubbly.” And, along with silver, it’s “nutty overbought.”
The quotes are from BofA’s Michael Hartnett who, in the latest edition of his popular weekly “Flow Show” series, expounded on the debasement trade which by now is as crowded as trades come.
Precious metals paused on Friday morning in the US amid Kevin Warsh’s Fed nomination and an unexpectedly warm read on factory gate prices, but we’ve just witnessed what it’s fair to call one of modernity’s grandest gold rallies.
At one point this week, bullion was up 15% in just eight days, running 2026’s YTD advance to 23%, simply mind-boggling coming as it does on the heels of gold’s best annual advance since 1979.
The figure above, which plots gold’s deviation from its own 200-day in percentage terms, gives you some context for just how escalatory the rally became over the last five months.
That sort of thing isn’t generally sustainable, but as Hartnett wrote, “great gold bulls are only ended by great events.” He mentioned the Volcker rate shock, the end of the EU debt crisis and the COVID vaccine.
Still, it’s hard to ignore the disconnects. The figure below shows you gold versus US real rates. Normally, the two are linked at the hip inversely — the higher the inflation-adjusted yield on interest-bearing USDs, the less attractive gold should be as an asset that has no internal rate of return.
Real yields turned positive in May of 2022, two months into the Fed’s hiking campaign and they’ve loitered between 2% and 2.30% since the summer of 2023. Gold never stopped insisting they should be negative. At current levels, gold prices imply the most negative US real rates in history.
Again: There really isn’t a modern (and your definition of “modern” depends in no small part on your age) analogue for what we’re seeing in gold. But there is an explanation.
“Political populism, global fiscal excess, Fed independence to deference, US exceptionalism to global rebalancing, AI nationalization and AI = UBI = YCC is why gold’s going bubbly,” Hartnett went on.
Gold funds saw nearly $7 billion of inflows over the week, the largest haul since October, when the years-long rally took its first turn for the parabolic. Precious metals funds have seen inflows for 12 straight weeks.
Look at the 1970’s when gold last became unhinged and the world lost faith in the U.S. and its ability to manage the world economic order. We had Nixon, not as bad as Trump, but similar. The came Ford, and the U.S. lost control of inflation. Today’s charts are CALM COMPARED TO THOSE. We suggest that the future is more likely to be more dangerous for assets and growth than it was then.
Comparing to 70s, today’s move is definitely amplified by speculative mania facilitated by instant access to these assets(robinhood/perp cex dex/Alipay’s in-app access to gold trading etc)