Last week I said on gold and metals “if you have been having some fun here, be wary of very sharp reversals. 10-20% reversals in a day are not uncommon. Re-set your stop-loss, and don’t forget to apply it.” A crazy few days followed.
I must confess my reaction to the gold spike up through $5,000 on Monday morning. When a major asset class has been hijacked by an investor mania, and first thing on a Monday morning the price spikes up through a round number which was unimaginable a few months ago, my experience is that it’s a decent time to step to one side. I even said to my colleagues that it would close down through $5,000 by Monday’s close. I was wrong of course, the gold price had a bit more steam in it. The price went up through $5,400 by Wednesday, though as I write is barely 0.1% above the round number.
What is going on?
Much nonsense has been written about gold this week, particularly the “it’s the ultimate safe haven”. This is tosh. Central banks did most of their buying in 2024, and will likely only buy again in scale when prices are much lower. The uber wealthy were buying earlier in 2025, many in great secrecy.
It is retail investors who are driving the recent spike higher. They are not waking up in the morning and screaming “mon dieu, I must go out and buy a safe haven!”. What they are doing is seeing a price going up and assuming it will keep going up. It is not just any old momentum. It is momentum in the world’s most emotional “investment”.
Gold is FOMO dressed up as wisdom, wrapped in 5,000 years "store of value" mythology.
There were many other signs of an imminent peak. For example, measures of confidence from Market Vane have never been higher in its 37 year history.
A quick glance at my gold chart highlighted that if there was a significant peak this week, there is 25% downside from that level to bring it back to support, in the region of $4,000.
The US dollar has been in trouble. Some will tell you that when the dollar goes down, gold goes up. It’s a guide not a rule. I find a more compelling story looking at the dollar spot index since its peak in Autumn 2022. There is a very clear correction, sweeping down from that peak to the low earlier this week. It is in a clear ABC wave form, where A equals C. Textbook stuff. The message is that the dollar is about to move sharply higher, something which almost no analysts expect.
If the latter analysis is correct, and the dollar/gold guideline holds, this will be the trigger for the gold price going lower. Take care.
Although Trump has regularly declared that he wants the dollar lower, there is a big difference between an orderly decline and panic selling. With confidence in the US at such a low ebb, sharper dollar falls could trigger sharp stock market falls, and a spike in US bond yields, which would sound the death knell for Republican hopes in the November elections. So expect the US authorities to step in and stop the rot in the days ahead. This will likely impact all the metals, with silver being the biggest faller.
Currency has also featured in lots of Japan coverage in recent times. This has been triggered by the snap election called by their Prime Minister, Sanae Takaichi. There is not yet a consensus on whether she is more Thatcher or Truss. There are a lot of moving parts, and it requires a longer treatment another week. For now, their small caps continue to have the greatest potential. Nonetheless, the risks in Japan highlight why you should not over-commit to any one global asset class.
It is early in 2026, yet it is encouraging that one large theme continues to play out, Value vs Growth. The iShares World Value ETF might only be up 4.4% so far, but it is still more than 3x that from the iShares World Momentum ETF, concentrated in US Growth stocks.
It’s that time for What’s Hot? What’s Not?, and unsurprisingly it is gold and commodities which dominate both the winning funds and sector. India was the biggest notable loser, very much due to domestic ructions. Perhaps the most encouraging for some of us is the appearance of the UK Smaller Companies sector. One month does not a lasting recovery make. That requires a more sustained outperformance versus the FTSE 100 index in the months ahead.