Gold was in the investment "sweet spot" at the start of this year...

The metal was in a powerful uptrend. It hit a new high in December 2023. But after a minor slide, investors hated the idea of owning it.

That's the perfect investment setup. As regular readers know, you want to buy when the trend is in your favor... before the crowd catches on to the opportunity.

Sure enough, gold staged an impressive rally. The metal jumped from $2,000 to $2,400 an ounce in only a few months. And it has kept rallying since.

Investors have caught on by now, though. Futures traders are the most bullish they've been since early 2022. And while that doesn't guarantee a crash, we should expect gold prices to slow down in the months ahead.

It has been a heck of a year for gold. The metal is up 25% in 2024, handily outperforming even the gains in stocks.

This rally flew under the radar for most of the year. With all the excitement over artificial intelligence, no one seemed to care about anything but the stock market's high-profile winners.

Now, that has changed...

We can see it by looking at the Commitment of Traders ("COT") report for gold. This weekly report tracks the real-money bets of futures traders.

Normally, this information doesn't tell us much about what will happen next. But when these traders begin making extreme bets in one direction or another, it's often a strong contrarian signal.

Right now, the COT report for gold is showing the highest number of bullish trades we've seen since early 2022. Back then, gold was on the verge of hitting a new all-time high. Take a look...

You might think this optimism is a bad sign. But as you can see, the reality is more complicated...

Sentiment in the futures market tends to track prices. When the trend is up, folks get more bullish. Eventually, they get so bullish that a slowdown – or a major reversal – is inevitable.

There's a catch, though. While bearish sentiment almost always signals a market bottom, bullish sentiment doesn't always mean a crash is incoming.

We've seen four other major bullish sentiment peaks for the metal since 2010. Two of them signaled tops. But after the other two extremes, prices continued to boom. Take a look...

These highs in bullish sentiment tell a mixed story. Two led to impressive gains for around another year... while the other two led to double-digit losses in the next six to seven months.

We don't know how things will shake out this time. But today's sentiment levels, while elevated, aren't as high as we've seen in the past. Folks can still get a lot more bullish before the current boom ends.

It's worth being cautious, though. Gold has already made a stellar run-up in recent months. And history shows a slowdown is possible in the months to come.

Good investing,

Brett Eversole