Gold Poised for Big Reversal

Adam Hamilton     June 26, 2026     2509 Words

Gold is poised for a big reversal after getting slammed in recent weeks.  Mostly driven by fears the Fed is shifting hawkish, that heavy selling was irrational and overdone.  Gold has mostly thrived in past rate-hike cycles, and this Fed isn’t likely to hike much anyway.  Gold’s anomalous June breakdown reinforced and buttressed a wide array of bullish factors pointing to a major rebound, which will likely soon be underway.

Before June’s surprising carnage, gold was looking good technically.  After soaring to a crazy 45.9-year overboughtness high in late January, gold corrected hard into late March.  That serious 18.6% drawdown over 1.8 months went a long way toward rebalancing extreme technicals and sentiment.  The resulting $4,390 low held strong, becoming support for a high consolidation over the next 2.3 months into early June.

The longer a trend persists, the more durable it becomes technically.  While June is the heart of gold’s summer-doldrums weak season, traders sure weren’t worried about a breakdown.  On June 2nd, hyper-leveraged gold-futures speculators’ total short contracts or downside bets on gold fell to a deep 16.8-year low!  Gold’s reckoning after its biggest cyclical bull ever in dollar terms peaked in January looked long past.

Yet heavy selling erupted anyway early on June 5th, right when the latest US monthly jobs report hit the wires.  Headline nonfarm payrolls more than doubled economists’ forecasts in a four-standard-deviation beat!  Past-two-month revisions also proved strong, with wage inflation in line with estimates.  Traders figured that boosted the odds of Fed rate hikes later this year, leaving futures pricing in a single 25-basis-point one.

Prospects of higher yields goosed the US Dollar Index 0.7%, its biggest up day since March’s dawn right after Trump launched his war on Iran.  So gold-futures specs who watch the dollar’s fortunes as their primary trading cue fled, pummeling gold 3.7% lower to $4,313!  Such a wild overreaction would’ve been unlikely outside of the summer doldrums, and it decisively broke preceding months’ high-consolidation support.

That technical damage spilled into sentiment, leaving traders more bearish on gold.  They soon resumed heavy selling on the 10th with the backward war trade, hammering gold 4.3% lower to $4,073 on serious escalations in Trump’s war!  The USDX merely edged up 0.1% that day, but gold had been paradoxically selling off for months when the war intensified.  That never made sense, as war-fueled inflation is bullish for gold.

Indeed gold bounced sharply over the subsequent four trading days, regaining $4,331 on the 16th.  While still under the broken high consolidation’s old support, that had quickly erased nearly 2/3rds of gold’s big Jobs-Friday and war-Wednesday plunges!  Gold’s upward momentum continued on the 17th right up to its 2pm FOMC decision, rallying 1.1% intraday to $4,380 which would’ve unwound over 3/4ths of gold’s plunge.

But the FOMC statement, top Fed officials’ accompanying federal-funds-rate projections, and the first press conference from Trump’s new Fed chair Kevin Warsh all came across as hawkish.  So the USDX surged 0.9%, unleashing more gold-futures selling pounding gold 1.6% lower on close to $4,263.  The dollar kept rallying over the subsequent four trading days into midweek, leaving the USDX at a 13.4-month high.

Gold kept on selling off as increasingly-bearish traders piled on to its downside momentum, suffering additional big 1.1%, 2.0%, and 2.8% down days.  Those crushed gold back to $3,993 midweek, which extended its total drawdown since late January’s peak to 26.0% over 4.8 months!  Gold’s worsening technicals greatly ramped bearish sentiment, seen in proliferating financial-media reports warning of more downside.

So now consensus for gold is to continue weakening on balance, on the premise recent years’ major debasement trade has fizzled out with Fed rate hikes looming.  But bearish herd sentiment complete with popular rationalizations for lower prices still coming is a hallmark of bottomings.  Gold is actually poised for a big reversal, supported by many bullish factors.  And that rebound rally is likely to ignite in coming weeks.

Technically gold has plunged to deeply-oversold levels and is trading near another major support zone at $4,000.  This chart grants some essential perspective, showing how far gold has fallen and how much of its late monster record gold bull has been erased.  That soared 196.4% higher in 27.8 months without a single 10%+ correction!  June’s anomalous breakdown has left gold giving back nearly 4/10ths of those gains!

Gold certainly needed a serious drawdown to rebalance extreme sentiment and technicals after early January’s extremes, as I warned extensively at the time.  After gold’s next-ten-largest cyclical bulls in dollar terms since 1971, it averaged subsequent big-and-fast selloffs of 20.8% over 2.1 months.  Late March’s 18.6% in 1.8 was nearly there, paving the way for gold’s subsequent high consolidation into early June.

But this week’s extended drawdown to 26.0% over 4.8 months is really excessive historically.  Other than January 1980’s notorious bubble that subsequently suffered a brutal 43.4% collapse over 1.9 months, the next-ten-largest bulls after that and this latest one averaged 17.5% over 2.2 months.  January 1980’s gold peak was radically more extreme than January 2026’s, gold crested 138.7% above its 200dma compared to 43.4%!

Gold’s anomalous June breakdown also slammed it back to deeply-oversold levels.  Midweek gold was trading at just 0.898x its 200dma, the most oversold it has been in fully 3.7 years since way back in mid-October 2022!  That was a year before gold’s late monster record bull got underway, which happened to be born at 0.946x gold’s 200dma.  Major secular oversoldness extremes portend imminent big-and-fast rallies.

The primary fuel for such sharp rebounds is speculators flooding back into gold futures, which spawns, chases, and amplifies gold upside.  Specs’ gold-futures positioning today is very bullish for gold, with their longs or upside bets really low.  In the latest-reported weekly data only current to June 16th which was entirely before gold’s latest hawkish-FOMC-driven plunge, spec longs remained way down near major lows.

They ran just 255.1k contracts, or less than 3% above late May’s deep 3.5-year secular low of 247.9k!  So specs’ long selling is likely all but exhausted, while they have massive room to rush back in as gold recovers.  Total spec longs soared as high as 441.0k contracts during that recent record gold bull, and returning there would require colossal gold-equivalent buying of 578.3 metric tons!  Specs will soon chase gold higher.

Again they look to the US dollar’s fortunes for their primary trading cues.  From Jobs-Friday eve to this Wednesday, the USDX blasted a big-for-it 2.2% higher on Fed-rate-hike hopes.  Gold’s resulting brutal 10.8% plummeting in that short span was wildly overdone, and almost certainly wouldn’t have happened outside of the low-volume seasonally-weak summer doldrums.  USDX futures argue dollar buying is mostly over.

Again as of the latest-reported positioning data from the 16th just before Fed Day, spec longs in USDX futures surged to 34.5k contracts which was a 1.8-year high.  Those guys were also frenziedly covering shorts that week, combining for the biggest weekly USDX-futures buying in 2.0 years!  So dollar traders are likely running out of room to keep chasing it higher, with high longs and lower shorts ripe for big selling.

Seasonally gold tends to bottom in late June ahead of its strong autumn rally generally running into late September.  On average during all modern bull-market years since 2001, gold has powered 5.5% higher in that span.  But when gold is really oversold heading into its autumn rally and gold-futures speculators are positioned for big buying, those autumn rallies grow way larger.  This year’s is sure set up for major gains.

On average when gold’s seasonal autumn rally crests in late September, gold is up 12.8% year-to-date.  To regain that past-quarter-century metric this year, gold would have to rebound back to $4,864.  That would make for a massive 21.8% reversal off its anomalous midweek low!  As long as gold has key bullish drivers intact, the more overdone any selloff, the bigger the necessary mean-reversion rally out of it.

And the whole premise behind gold’s June breakdown is flat-out-wrong historically, that Fed rate hikes are bearish for gold.  Given gold’s strong track record during past rate-hike cycles, it blows my mind that gold-futures speculators worry about them at all.  I’ve done extensive historical studies on how gold has performed through all past ones since 1971.  They are defined as three-or-more hikes with no interrupting cuts.

On average through the exact spans of all 13 Fed-rate-hike cycles in the past 55.5 years, gold achieved impressive 27.2% gains!  During the 9 of those 13 where gold rallied, its average gains proved far better at 43.9%!  And in the other 4 where gold fell, its average losses were asymmetrically small at just 10.5%.  Gold has powered higher in the last 5 Fed-rate-hike cycles, not declining through one since 1988 to 1989!

In general the less overbought or more oversold gold is entering a rate-hike cycle, and the more gradual the Fed’s hiking within them, the better gold fares.  With gold just irrationally slammed to those deeply-oversold levels, and this new Warsh Fed regime unlikely to hike much or many times, gold is well-positioned to surge through any hiking.  One or two hikes possible late this year wouldn’t even make for a cycle!

And ironically what the FOMC did last week makes gold’s panicky 7.8% plunge since that decision look even more ridiculous and aberrant.  The huge changes Warsh’s Fed is making are actually set to liberate gold from long years of Fed-hawkishness-fear-driven tyranny!  Trump’s new Fed chair has long been an outspoken critic of excessive Fed communication, particularly projecting future federal-funds-rate trajectories.

Kevin Warsh hit the ground running removing forward guidance on rates from the FOMC statement!  He also shifted the Fed’s priority back to the critical fighting-inflation side of its Congressional dual mandate, as the promoting-maximum-employment side has held sway in recent Fed regimes.  He set up a task force to look into Fed communications, particularly top Fed officials’ FFR outlooks summarized in the dot plots.

Those have always proven notoriously inaccurate at forecasting where the FFR actually heads, yet can still really distort markets.  In his press conference, Warsh emphatically declared he wants traders to react to actual data rather than instead gaming how it may affect FFR trajectories.  By greatly slashing the Fed’s rampant overcommunication, he will gradually wean traders off viewing everything through a Fed lens.

Gold’s initial breakdown this month was fueled by that monthly-US-jobs upside surprise, leading to fears that increased Fed-rate-hike odds.  Knee-jerk overreactions like that are much less likely if the FOMC is no longer fixated on jobs at the expense of achieving price stability which is far more important.  And if the Warsh Fed eliminates FFR projections later this year, traders will no longer obsess over what the dots may show.

The majority of gold’s outsized down days for long years erupted after either key economic data or Fed officials’ FFR projections implied higher rate trajectories ahead.  Warsh is trying to fix that, which ought to reduce the frequency and severity of such gold plunges in coming years.  It is reasonable for gold-futures speculators to respond to actual FOMC monetary-policy decisions, but not to violently overreact to potential ones.

Heck, June’s anomalous breakdown highlights the absurdity of all this.  Gold again plunged 3.7% on Jobs Friday after federal-funds futures implied a single 25bp rate hike later this year.  That was already fully priced in nearly two weeks before the latest FOMC decision!  Yet gold plunged another 7.8% since that on top Fed officials’ FFR projections showing that very same lone quarter-point hike towards the end of 2026.

How many times can gold sell off hard on the same FFR-trajectory outlook?  This makes no sense, and never has through many years of gold periodically puking on higher perceived FFR paths.  And if gold’s June breakdown wasn’t righteous or justified, that ups the odds a big reversal higher is imminent.  And on top of the bullish gold drivers already discussed, there is one all-important fundamental one ruling them all.

Because of the extreme euphoria spawned by the AI stock bubble, American stock investors have mostly ignored gold in recent years despite its late monster record bull.  Astoundingly their identifiable portfolio allocations to gold still round to zero!  There’s a great proxy that illustrates this, the ratio of the combined bullion holdings of the mighty world-dominant US GLD, IAU, and GLDM gold ETFs to the value of stock markets.

Midweek at gold’s anomalous $3,993 breakdown low, the total value of these mighty gold ETFs’ holdings ran $217.4b.  That’s a big chunk of change, but trivial compared to the combined market capitalizations of all S&P 500 stocks now running $66,995.0b.  That implies American stock investors only have around 0.32% of their portfolios in gold, just one-third of one percent!  So they have unbelievably-vast room to buy.

When this festering AI bubble which is way more extreme than 2000’s dot-com bubble according to many key metrics inevitably bursts, the reckoning is going to be severe.  Heavy sustained selling will ravage tech stocks dominating most investors’ portfolios, forcing them to diversify.  Some small fraction of those outflows will migrate into gold.  Even if gold only regains 1%, those huge capital inflows will catapult it way higher.

With gold’s technicals, sentiment, historical precedent, and fundamentals all very bullish, a big reversal higher soon is highly probable.  Gold never should’ve broken down on the threat of a mere Fed rate hike or two, it was super-irrational.  That argues gold is bottoming ahead of its major autumn rally, making this a great buying opportunity for the entire precious-metals complex including the now-battered gold-mining stocks.

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The bottom line is gold is poised for a big reversal soon.  Recent weeks’ anomalous breakdown on Fed-rate-hike fears was highly-irrational.  Gold has thrived through past Fed-rate-hike cycles, so a coming hike or two shouldn’t faze it at all.  And the new Fed chair hates market distortions spawned by traders trying to game FOMC reactions, so he is dramatically slashing communications on future rate trajectories.

Gold plunging multiple times in June on the same lone quarter-point rate-hike expectations left it deeply-oversold.  Speculators dumping gold futures on the surging dollar left their longs really low, portending big mean-reversion buying coming.  And gold will soon exit its summer-doldrums weak season embarking on its strong autumn rally.  And American stock investors’ gold allocations remain trivial, with vast room to chase.

Adam Hamilton, CPA     June 26, 2026     Subscribe