Both gold’s futures market and cash index climbed to new all-time highs last week.
Market analysts will likely be talking about fundamentals and the latest headlines, but none of this matters at this point.
Central banks and investors from around the world are interested in one thing. Just one thing: Price direction over time.
I was set to open this piece with the sentence, “A while back I wrote about applying my Market Rules to the gold market…”, thinking it was two, maybe three months. I casually scrolled through my archives on Barchart, and after going through a few months I couldn’t find it, so Googled “Darin Newsom Barchart Gold Rules”. It popped up – From October 17, 2024. It had been nearly a year. I knew time accelerated as one got older, but it still amazed (amused?) me almost 12 months had gone by. My interest piqued, I quickly reread what I wrote back then. As it turns out, I was set to write much the same thing this time around the calendar without realizing it, another drawback of having eclipsed the big 6-0 this past summer. With that in mind, and to hopefully avoid completely repeating myself, I’m going to take a different tack.
At the Barchart Grain Merchandising and Technology meetings I had the opportunity to take part in this past July, I would ask the guest analyst a question by referencing the scene from the movie City Slickers when the crusty, old cowboy Curly (played by Jack Palance) asked Mitch (Billy Crystal’s character), “Do you know what the secret of life is? (Curly holds up one finger, and no, not that one.) This. One thing. Just one thing. You stick to that and the rest don’t mean $#!+.” Naturally, Mitch asks, “But what is the ‘one thing’?” To which Curly smiles and replies, “That’s what you have to find out.” My question to the guest analysts was what one thing was the key to corn, soybeans, and wheat at mid-summer? But now we find ourselves in early fall, allowing our attention to move back to gold, and finding out its one thing.
As I tell my friends at Kitco each Friday, one of my Market Rules dominates the others these days in Gold. Given this, we can say the market has one Golden Rule, and six others that could come into play again. Maybe. Here’s how I see it in early September:
Rule #7: Stock markets go up over time. Classic intermarket technical analysis tells us the US dollar moves inverse to commodities, which is often simplified to the gold market. The dollar? I thought we were talking about stock indexes. Stay with me, for the rise and fall of the dollar tends to move with interest rates, which move inverse to stock indexes theoretically. Therefore, it is argued a rising dollar/weakening gold market indicates higher interest rates and weaker stock markets, resulting in gold and US stocks moving in the same general direction. While true in 2025, I don’t see the two markets absolutely dependent on each other, similar to when I talked about gold and wheat.
Rule #6: Fundamentals win in the end. What are gold’s fundamentals? We know there is solid demand from central banks around world due to the chaos created by global autocrats. What we don’t know is global supplies. (No. I am not talking about the US president’s fear-mongering of Fort Knox holding comic books rather than gold. Or something along that line.) While I usually say this rule is the Alpha and the Omega of my set, I’ll move it out of the spotlight in gold. At least for now.
Rule #5: It’s the what, not the why. We continue to work closer to the heart of the gold market. However, in this case, we do know the what and the why, and don’t need the fine folks in financial media making up reasons for us. It comes down to strong demand due to uncertainty, and gold’s historic role as a safe haven market. End of story. Does the US need an audit of Fort Know? No more so than is standard any year under any US administration. Maybe if chaos wasn’t the rule of the day, demand might not be as strong. Something to think about.
Rule #4A: A market that can’t go down won’t go down. A strong case could be made for Rule 4A, but for now I’d give this rule the silver medal rather than gold. It’s true that gold seems to be in a situation that it can’t go down, but I’m usually referring to a market with unknown support, the unseen hand if you will, and we know who is buying and for what reason. As I said above: Central banks from around the world as a safe haven against chaos. Therefore, gold’s continued rally isn’t much of a mystery.
Rule #3: Use filters to manage risk. It’s safe to say we can set this rule aside for now. The three filters I usually run markets through – seasonality, price distribution, and volatility – are basically pointless. Global chaos knows no seasonal tendencies, and a market making new all-times highs nearly every week makes price distribution a moot point. As for volatility, investment interest and central banks will continue to buy gold regardless of the potential downside risk, including the market’s rising implied volatility since mid-August.
Rule #2: Let the market dictate our actions. This ties into what I view as gold’s Golden Rule these days – and by process of elimination I’m sure you see where I’m headed – but our reads on real fundamentals don’t necessarily reflect the global situation and frankly have no effect on long-term positions. At some point basis (the difference between the Cash Index (GCY00) and futures (GCZ25)), futures spreads and the markets forward curve could come back into play. But it is going to be a while. In fact, this raises an uncomfortable question I have to deal with regarding futures spreads and forward curves in other markets. (More on this later.)
Rule #1: Don’t get crossways with the trend. This is the one, Gold’s Golden Rule. As I sent into Kitco this past Friday as part of its weekly poll of market analysts, “Up (gold’s direction next week). Because it would be foolish to think otherwise…”. Gold will continue to trend higher until it has a reason to not trend higher. Or as Newton’s First Law of Motion applied to markets states, “A trending market will stay in that trend until acted upon by an outside force.” What outside force is going to start selling gold? Central banks? Unlikely. Long-term investment interests? Probably not, though “a little ‘profit taking’ now and then is relished by the wisest men”[i].
Can a market as important as gold really be as simple as following trend (price direction over time)? Yes. It’s one thing. Just one thing.
[i] Extra points if you know where the idea of this quote comes from.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
