If there is one asset class that has near 100% bulls, it's gold - and the bullishness has paid off - up 25% in the last two months, outpacing pretty much every investment category. While we are believers in the long-term bullish view, mostly as a currency diversifier, the recent run up has been driven by record inflows into Gold ETFs - central banks were the story in 2023 and 2024, not so this year. ETF flows, reflect fickle, retail money and very much a reflection of FOMO. A parabolic rally into new highs, in uncharted territory has few guideposts - momentum indicators however do provide early signs. There is initial support in the 4000 area, but a test of 3900 is a distinct possibility. For GLD, corresponding levels are 365 and 355. Relative to equities (SPX), gold is testing a critical resistance zone at 0.62 - a breakout past this will resume outperformance, but likely only after a breather.
Despite the long-term bullish view, there is now merit in booking some gains and revisit when some of the froth has ebbed. Opportunistically, long positions can be replaced by short puts (to accumulate at lower levels) or a "buy-the-dip" options structure that retains upside buy adds on dips.
While many investors will often use their low entry price as a reason not to worry, the reality is that the market is oblivious to your entry price and remember, if it's not in the bank, it's theoretical. Rather than fight the headwinds, lean into them.
- ETF Flows Drive Gold Prices - Central bank purchases drove gold prices from 2022-24 (aggregate over 1000 tonnes per year, double the average over the previous 10 years - very likely driven by a desire to diversify reserve holdings. The story in 2025 is however vastly different - just in the first half alone, investment demand is over 1000 tonnes. In context, aggregate investment demand over the three year period (2022-24) was 3000 tonnes.
- Parabolic Rise - Now Faces Headwinds - A 25% rally over the last two months, pretty much in a straight line, into all time highs, as retail demand chased rising prices, is now facing headwinds. While the sharp decline on Tuesday (21st Oct'25) appears excessive, we would expect to see rallies being sold given the weak set up.
- Gold vs. Equities - Gold has outperformed SPX by over 40% points this year - if we zoom out, Gold has actually underperformed equities since 2012. The recent outperformance brings the Gold/SPX ratio into a critical 0.62 resistance zone - a breakout from these levels will resume Gold's outperformance, but a breather is likely before that.
- Opportunities Through Options - We outline below two opportunities to replace current gold holdings, leveraging the options market. (1) A short put, 31 days out, at $370 on GLD yields 2% premium with a breakeven at $363, in sync with the support zone for GLD (2) A "buy-the-dip" options structure (see below), retains all upside while providing opportunities to accumulate at lower levels (avg. 6% lower)
Quarterly Change in Gold Demand - Investment demand is powering the rally in 2025
source: Lighthouse Canton using World Gold Council Data
Gold - Losing Momentum - Support in 4000 then 3900 area
source: Trading View
Gold vs. SPX - Outperformance Resumption Dependent on Breaking out of 0.62 Resistance Area
source: Trading View
Options Opportunities - Short Put on GLD
source: Optionstrat
Options Opportunities - "BUY-THE-DIP"
source: Optionstrat
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