Loading ...Decoding the True Stage of the Gold Bull Market By Minding The Allocation Gap
“Gold is in the final stages of its bull market.” It’s a sentiment echoed in headlines and analyst reports, a cautious whisper that has grown into a confident chorus. After a stunning run that has seen gold more than double from under $1,700 to over $4,000 in roughly two years, the consensus is building: the top is near.
But what if the consensus is profoundly wrong? What if, instead of the final innings, we are just hearing the opening notes of a symphony?
A single chart suggests the narrative of an exhausted bull run couldn’t be further from the truth. The data indicates that this gold bull market isn’t maturing; it’s just waking up.
The fundamentals that ignited this rally are not only intact but intensifying, and the one metric that truly matters; investor allocation, shows that the world is still massively underinvested in gold.
This widespread skepticism is, paradoxically, one of the most bullish indicators for gold. True secular bull markets are born in pessimism, grow in skepticism, mature in optimism, and die in euphoria.
The cacophony of cautious voices and premature calls for a top are not signs of a market peak; they are the classic sounds of a “wall of worry” that every great bull market must climb.
The time to be fearful is when your taxi driver is giving you stock tips and gold is on the cover of every magazine. We are nowhere near that point.
The current sentiment is one of disbelief, not delusion, which is fertile ground for a continued, powerful ascent.
The Allocation Gap: The Single Most Important Chart in Gold
The chart above is perhaps the most compelling piece of evidence for a multi-year gold bull market. It shows the implied allocation to gold ETFs as a percentage of all ETF assets.
During the peak of the last major gold bull market in 2011, this allocation surged to over 8%. Today, after a historic price run, where does that allocation stand? Less than a mere 2% and still not yet even to the level seen in 2006-2008 before the great financial crisis. There is still a long way to go before this gets to be called a “bull market top.”
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Let that sink in. At the height of the last cycle, for every $100 invested in ETFs, over $8 was in gold. Today, that figure is not quite $2, or less than 25% of what was allocated at the peak in 2011.
This isn’t the behavior of a market in its final, euphoric stages. This is the behavior of a market in the early phase of discovery, one where the vast majority of investors and institutions are still sitting on the sidelines, holding little to no gold.
As the bull market continues to assert itself, a simple reversion to the mean; let alone a push to new allocation highs, would unleash a torrent of capital into a relatively small market, with explosive consequences for the price.
This data reveals a tale of two buyers. The so-called “smart money;” sovereign wealth funds and central banks, primarily in the East, are accumulating physical gold at a record pace.
Meanwhile, the Western retail and institutional investor remains conspicuously absent, their portfolios still heavily skewed towards traditional stocks and bonds. This is the core of the opportunity.
The party has started, but the majority of the guests have yet to arrive. When they do, they will find a limited supply of chairs, and the price of admission will be significantly higher.
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