When the gold price entered a correction phase in October, many analysts and commentators quickly agreed: the gold bubble had burst. Subsequently, massive sales were observed in gold ETFs and ETCs backed by physical gold, and it appeared investors were fleeing gold and gold mining stocks in droves.
At first glance, it quickly seemed that the gold rally of recent months was nothing more than a flash in the pan. But is that truly the case? It cannot be denied that the statements made regarding the gold price differed significantly from the views expressed about the stock market over the past two decades.
Indeed, the stock market also repeatedly experienced very sharp price declines. Nevertheless, the general sentiment there was completely different from that for gold. While it was stated in October that the gold bubble had burst and the yellow metal would no longer reach its recently achieved highs, when observing correcting stock markets, it was repeatedly emphasized that investors should not overstate the consolidations, as the overarching trend remained unbroken and therefore not at risk.
Why is buying recommended in one market, while a total collapse of prices is anticipated in another?
In contrast to gold, it was therefore repeatedly emphasized in the stock markets that corrections presented entry opportunities that investors should utilize for a favorable entry or re-entry into the market. Such sentiments were rarely heard after the onset of the recent gold correction.
Those who recognized the correction as an opportunity and recommended buying at a favorable price in the gold market were primarily those who had already considered gold an attractive investment. They do not merely focus on the gold price but pay particular attention to the underlying fundamental drivers. And these have not changed in recent weeks.
Central banks continue to aggressively accumulate gold, geopolitical uncertainties have not vanished, and the debt problem was not resolved by the recent decline in gold prices. Therefore, there is still strong support for the expectation that gold will remain a sought-after investment due to powerful underlying drivers.
Even in the Gold Sector Itself, there is Currently No Sign of Euphoria.
A bull market is known to end when even the last investors, especially those previously inactive in that market, have bought in, and one suddenly receives unsolicited stock tips in newspapers, from friends, or in a taxi. Such a situation is currently not evident in the gold market, as the majority of investors have more or less overlooked the recent price increase, while the significant opportunities in artificial intelligence and technology stocks are very much on many people’s minds.
Even in the gold mining sector, there are no indications of a bull market in its late stage. On the contrary: many gold producers are valued as if the gold price were still significantly lower. These valuations thus reflect that the majority of investors do not consider current gold prices appropriate and anticipate a significant decline soon.
Gold mining companies are also acting with extreme caution. Scarcely any management ventures to present public models that project a gold price exceeding $3,000 per troy ounce. Typically, forecast calculations continue to assume a gold price below $2,000 per ounce.
The reason for this restraint stems from the past. During the last bull market, some managers faced criticism for being overly optimistic with their price expectations. To avoid similar accusations regarding gold mines today, managers continue to act very cautiously and conservatively in their future gold price assumptions.
All of this does not indicate that we have witnessed an extremely euphoric gold market in recent months. Rather, it is to be assumed that the long-term upward trend will resume and continue following the correction. This implies new all-time highs for gold sooner or later, and prices for mining companies and developers are also likely to continue rising in the long term.
