Is Gold Really Overbought? Craig Hemke's Insights

Gold Bull Markets And Price Pullbacks

Over the holiday weekend, I've seen many posts and comments about how "gold is overbought" and "due for a pullback". That may be true, of course, as all bull markets in gold play out in a series of higher highs and higher lows. But is gold truly "overbought"? That's a good question.
Most of this analysis appears to be based on a feeling that "price is too high". Generalist investors who don't often focus on gold see the price above $3000 and think it's too expensive. But too expensive compared to what? Stock? Bonds? Or is it just the price itself that bothers people?
The point here is this: I'm not going to tell you that gold can't or won't have another pullback in price soon. It most likely will. If anything, it’s because that's precisely how bull markets play out. In gold, you always seem to get two steps forward and then one step back before the next steps forward begin. The result is a chart that shows higher highs, followed by higher lows. You can see this in the chart below:

Gold spot price - Daily

Evaluating Gold’s Trend And Market Structure

Now that chart makes it appear price is going "parabolic", and the rate of price increase certainly seems to be accelerating. However, if we look closer and simply examine the trend year-to-date, the current rally appears to be quite orderly, apart from the sharp drop due to Trump's tariff announcement in early April and the quick reversal that followed a few days later.

Gold spot price - Daily

Is Gold Actually Overbought

Back to the original question, though: Is gold overbought and due for a significant pullback in price? One traditional measure of sentiment is the Relative Strength Index, where any reading over 70 is generally considered a measure that something is, indeed, overbought in the short term. As you can see below, COMEX gold futures reached an RSI of 76 earlier this month before the Trump tariff announcements. Price then fell $200 and the index dropped to 41. As I type, it's back to 76.
So maybe another pullback begins as soon as tomorrow? Maybe. Your guess is as good as mine. But in terms of gold being "expensive" and a "crowded trade", I'm not so sure. Yes, the gold price has rallied over $700 year-to-date, but this comes during a time of solid fundamentals and coincides with a sharp drop in the U.S. Dollar Index, which is now more than 11% off its early-January highs.

Gold spot price - Daily

Gold Futures, CoT Report, And Open Interest

And as to whether or not gold is a "crowded trade", the best indicator of that is the monthly Commitment of Traders (CoT) report from the CFTC. These reports measure the summary positioning of speculating hedge funds and other traders, as well as the supposedly neutral producers and Banks. The most recent report was surveyed on Tuesday, the 15th of April, and released late last Friday, the 18th. What did it show? 

  
If we do some math, we find that the Large Speculators were NET LONG 202,201 contracts. But that number is useless without some historical perspective. Would it surprise you to learn that the Large Speculators were last net long only 202,000 contracts on March 27, 2024, and again on May 7, 2024? And what was the gold price back then? About $2300. So here we are, about $1000 higher in price, yet with the same CoT positioning.
Further, that Large Speculator NET long position is down by a third since hitting its recent peak of 302,500 NET long on February 4, 2025—when price was around $2900. You could make a case that, in early February, COMEX gold was a "crowded trade", but price has rallied $500 since then while the speculating hedge funds have lessened their exposure. What gives?
Well, it seems that it's the combined "Commercial" category that is getting squeezed. Back on February 4, the Commercials were GROSS short 402,533 COMEX gold contracts. As of last week, they're now GROSS short 302,480. Over that same time, the Large Speculators have reduced their GROSS long position from 356,500 contracts to last Tuesday's 271,707.
So instead of gold becoming "crowded" with a speculative rush to own gold futures, what we’re seeing is Banks and Producers getting squeezed while Speculators are booking profits. That's the polar opposite of a speculative rush and fully betrays the notion that it's a crowded trade with everyone from shoeshine boys to cab drivers getting long.
And total contract open interest shows this too. Total COMEX gold open interest finished 2024 at 458,584 contracts—a paltry number, especially when you consider a recent high of 598,013 on July 18, 2024, and an all-time high of 732,917 contracts on February 25, 2020. But consider that, as of Thursday, April 17, total open interest is still just 460,535 and up just 2,000 contracts year-to-date.

Long-Term Strategy In Gold Investing

Anyway, what’s the point of all this? Of course, there will always be price pullbacks and "corrections". That's simply how markets operate. And your next pullback in the gold price may begin at any moment. However, just because the gold price "seems high" doesn't mean that it is, and to suggest that it's a "crowded trade" is demonstrably inaccurate based upon the current CoT structure.
In the end and as we concluded in this precious metals analysis post two weeks ago, the best strategy may be to ignore the daily ups and downs, preferring instead a regular purchase schedule in the form of dollar cost averaging. This form of planning and preparing has served me well over the years. It may benefit your long-term goals too.

Have a great week and enjoy the ride!

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