President Charles de Gaulle once equated being an ally of the United States to sharing a lifeboat with an elephant. The last month has been like sharing a lifeboat with an elephant on ketamine.
Gold epitomizes recent volatility in financial markets. It spiked up to $3,500 per ounce on President Trump’s threat to fire Fed chair Jerome Powell and then plunged when Treasury Secretary Bessent and later Trump moved to placate markets.
Wall Street flipped to buy mode on Tuesday, without any fresh criticism of U.S. Federal Reserve Chairman Jerome Powell or flip-flops on tariffs from President Donald Trump to disquiet markets again. Indexes reversed Monday’s tumble, hitting session highs following a report that U.S. Treasury Secretary Scott Bessent had said a tariff standoff with China was unsustainable and he expected the situation to de-escalate, raising hopes a bit on U.S. trade negotiations. (Reuters)
Is this a blow-off?
No. The Trend Index shows a sharp rise in volatility since April 9, but these are short-term moves rather than the culmination of a long-term acceleration.
Blow-offs typically occur after a feedback loop in which rising prices attract more buyers, who drive up prices, attracting more buyers. The cycle repeats, with the trend growing increasingly steeper until the market reaches saturation point, when new buyers dry up and the market reverses in a sharp blow-off top.
Similar feedback loops occur in nature–from bushfires and housefires to locust swarms and cyclones–where they start slowly and accelerate into a massive culmination. A bushfire runs out of dry brush, a fire in a room runs out of oxygen, a locust swarm runs out of food, and a cyclone runs out of moist air when it reaches land. All end similarly: expanding rapidly until they consume all available fuel, then suddenly dying.
The weekly chart below shows a typical stock blow-off, experienced by vaccine specialist Moderna (MRNA) during the 2020-2021 COVID pandemic.
MRNA gained 2500% in less than two years before the accelerating uptrend ended suddenly, with a shooting star reversal at $500. The stock had more than doubled in the preceding four weeks, with the weekly Trend Index spiking to a high of 5.
In comparison, gold gained 75% over the past 14 months, accelerating to a 16% gain in the past five weeks, with the Trend Index peaking at a high of 1.
Conclusion
There is no evidence that rising demand for gold is approaching a culmination. Private demand is growing, and central banks are rapidly converting reserves to gold. Demand is fueled by global uncertainty, and there is no end in sight.
The current pull-back is a much-needed correction after a steep advance. We expect strong support around $3,150 per ounce and will buy the dip. Our long-term target remains $4,000 within the next six months.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.