Following a dramatic pullback after reaching historic highs, combined with warnings from "Bond King" Bill Gross and alarming signals from technical indicators, market sentiments, and position configurations, an increasingly urgent question arises: Has this gold bull market, driven by both safe-haven demand and speculative fervor, approached a critical turning point?

On Friday (October 17), spot gold nearly touched $4,380 during the Asian trading session, setting a new record, but then switched to a downtrend during European trading hours and accelerated its decline in early U.S. trading. Ultimately, it closed with a drop exceeding 2%, marking the largest single-day decline since Thanksgiving 2024, even as it had risen on nine of the previous ten days. However, despite the crash on Friday, gold prices still increased nearly 5% over the week, marking the tenth consecutive week of gains and the best weekly performance since May, after a rebound from testing the $4,200 level.

The unusual intraday reversal in gold prices coincided with warnings from Wall Street legend and "Bond King" Bill Gross. In a previous article, Gross stated on social media platform X that gold has become a "momentum/meme asset" and advised potential buyers to "wait a little longer."

Remarkably, following the dramatic intraday plunge, zerohedge pointed out that while the long-term investment rationale for gold remains solid, technical indicators, market sentiment, and position configuration collectively signal a warning—this globally sought-after safe-haven asset may have become overly crowded. Analysis indicates that gold might still be the "right" asset, but its current price may no longer be "proper."

In addition to technical indicators flashing red, there is a noticeable divergence from traditional fundamental drivers supporting this bull market in gold. Previous articles mentioned that one of the most striking characteristics of this gold bull market is its rise being out of sync with several traditional driving factors, leading an increasing number of analysts to believe that speculative forces might have overtaken fundamentals.

While fundamental supports remain, tactical conditions have changed Financial blog Zerohedge recently noted that the core investment logic for gold hasn’t changed: inflation hedging, interest rate cut expectations, and central bank diversification needs continue to provide long-term support. However, market sentiment, position structuring, and volatility levels all indicate that current trading has become overly crowded. This means that even with the right direction, the timing and price for entry may no longer be appropriate.

1. Significant deviation from technical benchmarks The current price is unusually distanced from short-term moving averages, with the 21-day moving average around $3,950 and the 50-day moving average at $3,675. Even if gold prices pull back to near the 21-day moving average of $3,950, the long-term upward trend may not be compromised. Daily charts suggest potential reversal patterns are forming, with current candlesticks exhibiting characteristics of a shooting star, typically indicating short-term peak risk, necessitating close attention to follow-up confirmation signals.

2. Extremely exuberant market sentiment The Gold Volatility Index (GVZ) has surged to extreme levels recently, reflecting market pressure to chase gold call options. This volatility, driven by panic buying, could exacerbate price corrections if sentiment reverses, as related options positions may face liquidation.

According to data observed by ANZ Bank, the "incremental" inflows into gold ETFs are actually slowing down, indicating weakened buying momentum. However, Bank of America noted that net inflows into gold ETFs reached $34.2 billion over the past ten weeks, marking a historic high.

3. Institutional holdings at extreme levels Quantitative strategies indicate extreme conditions. Citigroup highlighted that Commodity Trading Advisors (CTAs) are maintaining a high bullish exposure to gold. This means that any price reversal could trigger programmatic selling, amplifying declines.

The extremity of institutional holdings signifies a lack of incremental buying power in the market, meaning any negative catalysts could initiate concentrated liquidation, increasing price volatility.

Is there a disconnection from traditional fundamental drivers? As previously pointed out, one of the most striking characteristics of this gold bull market is its upward momentum being out of sync with several traditional driving factors. Theoretically, as a zero-yielding asset, gold’s attractiveness increases when real interest rates fall, the dollar weakens, or safe-haven sentiments rise. Yet recent market performance has often disrupted these conventional logics.

Firstly, gold prices and risk assets have exhibited a rare pattern of rising together. Observations from Reuters columnist Mike Dolan indicate that despite rising gold prices, global equity markets have also rebounded significantly since April, with market uncertainty indicators actually declining.

Secondly, there is a divergence in the trends between gold prices and real interest rates. JPMorgan noted that the recent sharp surge in gold prices far exceeds what could be explained by the concurrent decline in real interest rates.

Moreover, since mid-September, the dollar index has continued to rise, yet gold seems to be "unfazed" by this. This disconnection phenomenon has left many investors who rely on traditional model analyses puzzled.

As Zerohedge recently pointed out, several factors that previously propelled gold prices higher are now changing.

The VIX index has seen significant surges, but recent day trading exhibited sharp pullbacks, diminishing gold's short-term appeal as a "panic hedge." Volatility in the Japanese bond market was once a crucial reason supporting gold buying. However, the yield on 30-year Japanese government bonds has stabilized since the initiation of this new phase of gold price increases, reducing the validity of this logic. The dollar’s movement also poses potential pressure on gold prices. The dollar index (DXY) has risen continuously since mid-September, raising questions among analysts about whether gold can continue ignoring this traditionally negative correlated factor.

Bull vs. Bear: Bubble or New Paradigm? In light of the increasingly complex market landscape, considerable divergence in opinions has emerged among Wall Street investment banks and analysts, leading to a fierce debate over whether gold is in a "bubble" or signifies a "new paradigm."

Bearish sentiment holds that the current frenzy might be reaching its conclusion. In addition to Gross's warning about "meme assets," both JPMorgan and HSBC have cautioned that if market expectations regarding the terminal rate for the current Fed cycle rise again, gold will face challenges.

However, bullish positions remain steadfast. JPMorgan believes that the mismatch between prices and interest rates can be explained by strong physical demand and advises investors to buy dips during short-term corrections. Bank of America argues that the White House's "unconventional policy framework," including increasing fiscal deficits and rising debt, will continue to be beneficial for gold. Analyst Zhang Yu from Huachuang Securities argues that the core driving force behind this price surge has shifted from traditional interest rates to market expectations of a "reconstruction of the global political economy" and suggests maintaining a strategic respect for gold, as its upward trend may still be far from over.