The Big Risk in the Gold Market

"It's hot, don't touch it."

I remember hearing that often as a kid.

I wasn't allowed in the kitchen much. My parents couldn't trust me.

The problem was that I hadn't been burned yet. And the excitement of seeing what was on the stove made me forget the concept of consequences.

Of course, after getting burned a few times, it didn't take long for me to stop reaching. It's not always so easy to learn the same lesson in investing, though.

As contrarians, our goal is to avoid betting with the crowd... But it can be tough. Seeing everyone pile in during a rally can make you feel left out. You want to reach out and see what you're missing.

History shows that following the temptation is how you get burned. And that's the big risk in the gold market right now.

Let me explain...

Following the crowd is a surefire way to get burned... It's as simple as that. And thanks to recent global tensions, the crowd loves gold.

That's no surprise. Gold is often referred to as catastrophe insurance. It goes up when bad stuff happens. In recent months, we saw tensions flare between the U.S. and Iran. Then, the coronavirus fears took over.

Both events pushed investors to bid up the price of gold. And it has led to hugely positive sentiment for the metal.

Bullish bets on gold prices recently hit record levels based on the Commitment of Traders ("COT") report. The COT report is a weekly report that tells us what futures traders are doing with their money.

Importantly, if futures traders are all betting in one direction, the opposite is likely to happen. And futures traders are all betting on higher gold prices today. Check it out...

To put it simply, a high reading on the chart means futures traders are bullish. They hit hugely bullish levels last July... And now, recent events have pushed us back to those highs.

History says that this is a bad sign for gold bugs.

Remember, futures traders tend to pile into a trade at the worst time. Extreme bets in either direction can lead to major reversals. We saw this in 2011 and 2016...

Futures traders were "all in" both times... and gold prices fell hard.

Bullish bets on gold peaked in early August 2011. Gold prices peaked just weeks later and fell 19% by May 2012.

We saw a similar move in 2016. Futures traders hit peak bullish levels in early July that year... And gold prices fell 17% by mid-December.

Gold prices have spiked recently. But history says it's now a crowded trade. That makes avoiding the metal a smart bet for now. Otherwise, you'll likely get burned...

Good investing,

Chris Igou

Editor's note: Our Spring Investment Summit is coming up – and tickets are going fast. On May 4 and 5, we're flying some of the best minds in finance to speak to you in London. This is your chance to enjoy one of the world's most vibrant cultural and economic centers... meet your favorite Stansberry Research editors, including Steve... and hear stock ideas you'll never find in our newsletters. Learn more here, before this event sells out.

Further Reading

"You can't buy what's already incredibly popular – because if you do, chances are you've already missed it," Steve explains. This is just one tip that can help you avoid getting burned in the markets... Read more here: Investment Advice TO a World Champ.

"They don't see how much value is around them – right here, right now," Steve says. History says gold is overly loved today. But investors are overlooking another type of investment right now. And it's still booming... Learn more here.

DailyWealth Premium

When investors drive a stock too far in one direction, it's worth paying attention to. And today, one oversold bank stock could soon stage a double-digit rally...

Market Notes



Apple (AAPL)... iconic tech brand
Microsoft (MSFT)... "digital utility"
DocuSign (DOCU)... Software as a Service
Tyler Technologies (TYL)... Software as a Service
Acceleron Pharma (XLRN)... biopharmaceuticals
Quest Diagnostics (DGX)... medical data
Becton Dickinson (BDX)... needles and syringes
Hologic (HOLX)... medical devices
Garmin (GRMN)... GPS devices
Johnson & Johnson (JNJ)... consumer goods
NVR (NVR)... homebuilder
Lennar (LEN)... homebuilder
PulteGroup (PHM)... homebuilder
Invitation Homes (INVH)... real estate investment trust
Franco-Nevada (FNV)... gold royalties
American Water Works (AWK)... utility stock
Southern Company (SO)... utility stock
Waste Management (WM)... garbage collection


 IMAX (IMAX)... movie theaters
ExxonMobil (XOM)... oil and gas
U.S. Steel (X)... steel