Gold Price Bubble Myth And Market Reality

Last week, we discussed the fallacy that silver was somehow in a "speculative bubble" and doomed to collapse in silver price. But you've likely heard the same nonsense regarding gold, so this week, let's take some time to dispel that notion too.

Let's start with last week's post regarding COMEX silver. If you missed it, here is the link…and it's a shame if you did miss it because, as I type, the price of COMEX silver is about $10 higher than where it was when I wrote this article last Monday, the 16^th.

COMEX Gold Commitment Of Traders Report Analysis

This week, let's focus on COMEX gold, and though price is already up about $130 on Monday the 23rd, I think you'll see that it still has room to run.

The focus of this post is the Speculator positioning on COMEX—both the "Large Speculator" category and the "Managed Money" sub-category of the disaggregated Commitment of Traders report. Below is the data that was surveyed last Tuesday, the 17th, and reported on Friday, the 20th.

Again, the mainstream financial media will tell you that the gold price is in a "speculative bubble" and "blowoff" phase. But who are these "speculators"? As you can see above, they are primarily the Managed Money funds. Who/what are those funds? This from the CFTC website:

OK, now let's do some math. Scroll back up to that CoT data and note the following:

•           Large Speculators GROSS long 213,432 COMEX gold contracts and GROSS short 53,517. This leaves them with a cumulative position of NET long 159,915 contracts.

•           The Managed Money sub-category was GROSS long 123,011 COMEX gold contracts and GROSS short 27,118. This leaves them with a cumulative position of NET long 95,893.

Is Gold In A Speculative Bubble Or Bull Market?

If you just stop there, maybe that sounds like a lot. When you see 95,893 contracts, which represents 9,589,300 ounces of "gold", that sure seems like a lot! But is it a lot in context and from a historical perspective? Is it a "bubble" or is it something else?

Well, here's the thing. That 159,915 contract NET long position is the SMALLEST seen in the "Large Speculator" category since the report that was surveyed on February 27, 2024. Yes, you read that correctly. The Large Speculators currently maintain their smallest COMEX gold position in nearly two years!

And what about the sub-category of Managed Money? At 95,893 NET long, this group is also carrying their smallest reported position since the survey of February 27, 2024.

This, of course, is not a be-all-end-all measurement of whether there is speculative overexcitement in COMEX gold. However, I invite you to look at the chart below and note the blue arrow that points to where price was in late February of 2024.

Gold - Weekly Nearest Candlestick Chart

Gold Price Chart February 2024 Comparison

Was gold in a "bubble" and "blowoff" at $2000 two years ago? Nope. And I think it should be quite clear that it's not in a bubble now either. That's not to say that price won't ebb and flow as it moves higher. You can plainly see a type of bull market action on the chart above. But I would not make the mistake of thinking that just because the price is now more than $5000/ounce, it's somehow "expensive" or "inflated".

Gold Price And U.S. Dollar Devaluation Explained

Always remember that your gold doesn't change. It is just a "pet rock" that sits in a vault and "collects dust". But that's it's advantage! Your gold is just your gold. It is the measuring stick. Its value is retained. What's changing over time is the purchasing power of your local fiat currency.

In the United States, we use dollars. It took about 1,200 of them to acquire an ounce of gold ten years ago and it took about 2,000 of them to acquire an ounce five years ago. That it now takes over 5,000 U.S. dollars to acquire an ounce tells you nothing about the gold itself. Instead, the gold price illustrates just how badly the U.S. dollar has been DEVALUED over time!

And don't expect this dollar devaluation trend to reverse. As the total U.S. government debt surges toward $40T and beyond, the amount of new dollars needed to service that debt will continue to grow. This cheapens the existing pile of dollars and forces the gold "price" even higher.

In the end, PLEASE do not fall for the brainless mainstream "analysis" that gold is in a speculative bubble that's ready to pop. The current Commitment of Traders positioning and simple monetary math combine to suggest that nothing could be further from the truth. 

Explore physical ownership options through gold bars and coins, and silver bars and coins. For additional perspective, read this analysis on silver positioning.