Gold reached $5,500 an ounce on Thursday last in what looks reminiscent of a parabolic price move since last October. A steep sell-off on Friday to under $5,000 an ounce could signal a peak of medium-term significance.
Further down in this note, we will cover what the strong upward move in the gold price is possibly signalling – i.e. is it reflecting investors’ concerns regarding the outlook for US inflation or nervousness regarding the level of US Government debt which is rising strongly on the back of persistently high US budget deficits and the accompanying concerns about the health of the US dollar? Or perhaps it is simply reflecting persistent central bank buying boosted further recently by speculative demand from institutional and retail investors?
First, however, we will focus solely on gold’s previous cycles to try and gauge how far along we are in this gold bull market.
A parabolic price move describes a situation where the pace of a price rise accelerates. It is often a trend ending signal and it is possible that is what we saw on Friday last (30th Jan 2026). It is the opposite of ‘Capitulation’ which is an event where a price decline accelerates and long-time subscribers and investment clients will recall that we monitor ‘Capitulation’ in markets and correctly identified market bottoms using this technical indicator in August 2011, December 2018, March 2020 and last April (2025) during the Trump tantrums.
A parabolic price rise occurs when demand temporarily overwhelms supply. In gold’s case, supply is relatively limited – central banks hold most of the above-ground gold reserves (and have been buying, not selling) and new annual gold supplies only represent circa 2% of existing reserves. So, it is relatively easy to overwhelm supply.
The gold chart above starts in 1935 just after the US devalued the dollar against gold as part of the then US Government’s efforts to reflate the economy after the Great Depression. It’s a log-chart, which better shows the proportional movements over time. By printing a lot of US currency at the time in the mid-1930s, the government flooded the economy with new money, boosting consumers spending power. But you can’t boost the supply of gold like that, so the price of gold rose against the dollar in response. For example, if an ounce of gold in 1933 bought you $18 and you then double the US currency in circulation to, say, $36 it makes sense that the gold price would also double to $36 to reflect that. And that’s pretty much what happened in 1934/35.
The gold price was then artificially held constant against the US dollar from 1935 to 1971 despite the US government continuing to print copious supplies of dollars over that period. Something had to give and in 1971 the US finally abandoned the dollar’s link to gold. As gold was deeply undervalued against recorded US inflation by 1971 (the dotted green line represents the inflation trend), a rip-roaring rally in the gold price made up for lost time.
Subsequent persistently high inflation in the 1970s saw investors continue to buy gold as protection against rampant inflation. Like every bull market, the 1970s gold bull market went too far by early-1980, and with bank deposits finally offering attractive returns above the then inflation rate, demand for gold waned and the ancient metal of the kings entered a 21-year bear market.
The peak in the gold price back in January 1980 saw a similar parabolic rise towards the end. Is history repeating itself here? There’s a high chance that it is.
Gold’s current average production cost globally is circa $1,650 an ounce, so that gold miners are making tremendous margins at the current gold price (net after-tax margins of 70%). If I was the CEO of a gold miner with good visibility over gold production at the company’s mines on a medium-term view, I would start selling forward the mine’s future gold output given these margins. This can be done in the commodities’ futures market. This is a potential source of fresh gold supplies but probably still a modest addition given that annual gold production adds just 2-3% to current global gold reserves.
Gold generates no income, so it is very difficult to value it in a conventional sense. We have tended to keep an eye on how gold is valued compared to another non-income generating, US dollar asset – the average US house price. The strength of this valuation comparison is that it has identified the peaks and troughs in the gold price since gold traded freely from the early 1970s onwards. So, this valuation ratio has proved to be predictive in the past.
On the chart, in early 1970, gold was so cheap compared to the average US house price that it took 700 ounces of gold to buy an average US home. The rip-roaring gold bull market of the 1970s peaked in January 1980 when it took just 100 ounces of gold to buy the average US house (price). From that gold price peak, the gold price lost 68% of its value (or 82% if inflation is accounted for) over the subsequent 21-year period to mid-2001.
By mid-2001, the gold price was once again deeply undervalued against the average US house price as, once again, it took nearly 700 ounces of gold to buy an average US home at that time. And another great gold bull market started. That gold bull market ended in September 2011 when, once again, it took only just over 100 ounces of gold to buy the average US house.
And today, it takes just 83 ounces of gold to buy the average US house. So, gold is even more expensive today compared to the average US home than it was at the two previous peaks (1980 & 2011). Everyone has their view today as to why gold and the precious metals are rallying so hard. We think the chart comparison is far more powerful in highlighting the dangers of participating in this gold bull market at this stage.
It’s worth recalling that we highlighted the possibility of this gold bull market using the Coppock Indicator which gave a rare ‘Buy’ signal on gold on the 31st December 2022 at a gold price of $1,826. We have followed this gold bull market with great interest since then.
While gold and silver may have peaked, at least on a medium-term view, we would not say the same about platinum and palladium. Platinum, for example, is even rarer than gold and has traditionally been in demand for the production of catalytic converters in combustion engines. If the hybrid car model becomes the norm (a car with a traditional combustion engine alongside an electric motor) it is possible that the platinum price rises above the gold price once again at some future point. After all, as the chart shows, the platinum price was traditionally higher than the gold price due to its greater rarity.
What is Gold Saying?
We now move on to try and decipher what the dramatic rise in the price of gold is telling us about inflation, the dollar and/or geopolitics.
First up is a look at the US dollar index, which compares the dollar to a basket of currencies weighted by the amount of trade they do with the US.
The chart opposite highlights that US dollar index weakness started in late-2022 and close enough to the time that we got a Coppock Indicator ‘Buy’ signal on gold.
And this week the dollar index tested a previous weekly closing low but, as of yet, has not made a lower low. So, while the dollar index trend looks to be downwards, it has not yet made a lower low.
And as long-standing subscribers will recall, a bear market in a stock, index, commodity or currency is often defined by a series of lower lows and lower highs. The dollar index looks weak, but we should let the price show us the way and the dollar index needs to close below 96.97 to make a lower low (on a weekly closing price series). So, while the dollar index has been weakening, it’s hardly in free fall and doesn’t really explain the surge in the gold price over the last few years.
Next up is a look at US inflationary trends to see if they are the concern. The chart opposite suggests not!
The chart highlights the rampant inflation in the 1970s that caused havoc for equities and medium- and long-dated government bonds in that decade.
The surge in inflation in the US after Covid-19 is also apparent. But it is fairly clear that US inflation has settled down to under 3.0% – perhaps not yet down to the Federal Reserve’s target level of 2.0% but, nonetheless, not at levels that would explain the gold price move.
Yes, with loose US monetary policy (the Federal Reserve is still engaged in quantitative easing i.e. money printing) and loose fiscal policy (persistently high budget deficits) there is a risk that inflation returns. As of yet, however, that risk has not crystallised.
Perhaps it is the rising level of US government debt (over 100% relative to GDP and rising) that is spooking investors? If that was the case, it would show up in both a weaker dollar index and most likely in higher long-dated bond yields (i.e. higher long-term US interest rates).
The chart opposite highlights the US 10-year bond yield. The yield today (4.21%) is pretty much the same as it was in late-2022. So, on the face of it, no change. Clearly, investors appear not to be more worried about US government debt levels compared to a few years ago, and, therefore, this is unlikely to be the source of gold’s price strength.
Lastly, central banks have been large and persistent buyers of gold, and the public has joined in more lately. As the chart highlights, central banks turned buyers of gold in 2010 and picked up the pace of their buying post the Russian invasion of Ukraine in early 2022.
Russia’s foreign currency reserves were frozen by the Western powers and this weighed on sentiment in non-democratic developing nations, who recognised the benefits of owning a currency outside the international banking system, gold.
So, in conclusion, the facts suggest that it is central bank buying of gold alone that has driven this gold bull market. And as is typical when a price is rising, others jump on the bandwagon.
No one can tell whether this gold bull market peaked a week or so ago when the price briefly surged to $5,500 an ounce. But if one places their faith in central banks continuing to buy, it might be worth noting that central bank selling in the mid- to late-1990s was when the gold price was already down 60% from its January 1980 high. In essence, central banks sold cheap. Are they buying dear today? Only time will tell, but the point is that history tells you that central banks offer no sound guidance on the issue of when to buy gold.
Of course, if the facts change, so might our view!
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Rory Gillen
6th February 2026
