Gold Could Hit $5,000, Strategist Says. Why Others Are Worried About a Crash.

Investors normally don’t talk about the risks of a bubble forming in the asset that they’re buying to hedge against a different bubble, but gold’s extraordinary surge is starting to trigger uncomfortable conversations about the yellow metal’s bullish prospects.

Gold prices have gained more than 55% this year, blowing past the $3,000 an ounce mark in early spring and topping the $4,000 threshold for the first time on record last month. Gold was up another 3.3% to $4,108.60 in Monday trading, a new record high.

Myriad reasons have been cited for the surge, including the slumping U.S. dollar, soaring tech stocks that have concentrated broader market risks into a handful of megacap tech names, purchases by central banks seeking to diversify away from the dollar, and renewed inflation risks tied to ongoing tariff and trade disputes.

Central bank buying has also been significant, with China alone adding 39.2 tons to its overall holdings since it returned to the market in November of last year.

“Central banks’ appetite for gold is driven by concerns from countries about Russian-style sanctions on their foreign assets in the wake of decisions made by the U.S. and Europe to freeze Russian assets, as well as shifting strategies on currency reserves,” said ING commodities strategist Ewa Manthey.

“The pace of buying by central banks doubled following Russia’s invasion of Ukraine in 2022.”

Gold-backed ETFs , meanwhile, are attracting billions in new investments, with overall additions likely to have topped 100 tons over the three months ending in September. That’s more than triple the quarterly average over the past eight years.

The combination of forces is likely to drive more gains for gold in the months ahead, according to Société Générale’s commodity research team, headed by Mike Haigh.

“Gold’s ascent to $5000 seems increasingly inevitable,” Haigh wrote in a note published Monday, citing both strong ETF flows and renewed central bank purchases.

Haigh also notes that ETF flows are tracking a rise in SocGen’s U.S. uncertainty index, which is now pegged at more than three times the level it reached over the five months before last year’s presidential election win for President Donald Trump.

“We cannot imagine a situation where we return to pre-Trump index uncertainty normalcy over our forecast horizon, so ETF flows are a key component to our price forecasting,” Haigh said. His $500o price target is pegged for the end of 2026.

Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, has a different take, tied in part to what she sees as a way for governments to “challenge the dollar’s stranglehold on global money movements.”

Gold holdings, Shalett argues, can “improve collateralisation of their fiat currencies and/or cryptocurrencies in a world where currency markets undefined may be remade by digital assets, cryptocurrencies, and stablecoins.”

The gold market’s mimicry of previous historic booms, however, has caught the attention of Bank of America analyst Paul Ciana, who cautioned in a note published last week that “prices have tended to pivot near round-number levels.”

Citing data showing “midway corrections” in long term bull markets for gold, Ciana sees the chances for a near-term pullback that “rhymes” with pullbacks of around 40% in the mid-1970s and 25% following the global financial crisis in 2008.

“This boom is about 10 years old, smaller in size than the 1970s and 2000s boom but nearly as old,” Ciana wrote. “This warrants caution into round number resistance at $4,000, or again later at $5,000.”

Gold isn’t likely a bubble. It’s hard for central banks to sell, and many of the countries encouraging its import, like China and India, also make it difficult for investors to move offshore.

But gold did lose around 60% of its value in the two decades that followed its 1970s boom, with bear markets following in 2008 and 2015.

This year’s really is still going strong, of course, but with gold’s advance tied to nearly all of the concerns currently gripping financial markets, maybe it’s worth asking if it’s being “all things to all people” is the best kind of hedge—or just another risky bet on rising prices.

Wall Street’s hottest trade has gone ice cold.

For years, it paid off to buy stocks that were rising in price—and bet against struggling shares. The momentum trade was especially profitable this year, as investors piled into hot stocks including Micron Technology, Nvidia, Advanced Micro Devices and other artificial-intelligence darlings while wagering against those likely to be hurt by the embrace of AI.

The S&P 500 Momentum Index soared 44% in the second quarter, its best quarterly performance on record, and it surged 133% over the past five years, nearly double the broad market’s performance.

Mega funds and rookie investors alike piled into the trade, some using leverage and options contracts in an effort to amplify their returns, propelling the underlying shares higher.

“It is a self-fulfilling prophecy,” said Matthew Tym, managing director at Cantor Fitzgerald, of the trade.

Suddenly, the trade is a loser. The momentum index has tumbled more than 9% since July 1, lagging behind the S&P 500’s 2.8% gain. The index—which tracks stocks in the S&P 500 based on a “momentum score”—is on track for the biggest quarterly underperformance in 25 years. July was the second-worst month for the momentum trade in around 40 years, according to Bank of America estimates; the only month worse was April 2009, in the teeth of the global financial crisis.

Hedge funds that bought momentum shares while shorting low-momentum stocks suffered even more. At the same time, a basket of the most popular stocks held by hedge funds tracked by Goldman Sachs recorded its biggest one-month underperformance in July relative to the S&P 500 in more than 20 years, according to the bank’s analysts.

Momentum trading is based on a rather simple observation: Investments that go up tend to keep outperforming; those that underperform often remain laggards. This kind of trading might seem too simple a stock-picking strategy to work. Yet it often has.

“For decades, it didn’t take a lot of sophistication to run a momentum strategy and make a decent living at it,” says Agustin Lebron, senior researcher at EquiLibre, a trading firm.

Part of the reason: It takes a while for corporate and other information to spread to various investors, so they slowly build positions, producing buying momentum.

“A huge pension fund can’t flip around its positions in a day,” says Lebron. “Behavioral biases also account for some of the effect, as well—people tend to sell their winners too early and hold losers too long.”

Fans of the strategy point to the human tendency to extrapolate from past results—and chase investment returns—noting that momentum patterns have been evident in markets for decades, even centuries. They also say that some of the worst months for momentum strategies are during longer periods of outperformance.

Some have been doing the trade by buying the strongest investments in a sector while shorting the weakest; others lean in to rising markets or asset classes. Still others use a quantitative approach or turn to banks or others who sell ways to make distinct wagers on momentum as a “tradable factor” or a “thematic basket.”

The fans remain believers. “Any strategy has disappointing periods,” says Antti Ilmanen, global co-head of the portfolio solutions group at AQR Capital Management.

The surge in Moderna and other biotech stocks helped crush the momentum trade. These shares were among the most heavily shorted in recent years, but positive news on a cancer vaccine from Moderna and Merck sent those stocks flying, crushing some quant and other hedge funds. Moderna is up around 150% so far this month.

These traders had an especially rough day on Aug. 19, which Goldman Sachs told its clients was the worst day for “systematic long-short managers” in more than two years. About half of the losses were because of momentum trades, the bank said.

Some traders have begun to short, or bet against, the very stocks that propelled the momentum trade earlier this year. Net short positions in futures tied to the Nasdaq-100 index among speculators recently climbed to some of the highest levels of the past two decades, according to data from the Commodity Futures Trading Commission.

The about-face is a sign of how markets have become more treacherous for investors, even as indexes keep climbing. Part of the issue: the recent meltdown of Situational Awareness, a hedge fund that had piled into some of the most popular momentum shares, including chip stocks. After a period of market tumult, Nvidia shares rocketed almost 9% after its earnings, showing how quickly sentiment can shift.

Some investors say the run-up in share prices driving tech stocks higher reminds them at times of the dot-com frenzy decades ago.

Mike Ogborne, the founder of San Francisco-based Ogborne Capital Management, said he has grown more cautious on technology stocks and is keeping more of his portfolio in cash than he typically does.

And he is nervous about the surge in spending by technology giants and quarterly capital expenditures that keep rising.

“It is a little bit like Cinderella and the clock striking midnight. You don’t know when midnight is going to come around,” Ogborne said. “They don’t send a memo around telling you when the capex cycle is over.”

Gold Could Hit $5,000, Strategist Says. Why Others Are Worried About a Crash.

Wall Street’s hottest momentum trade has reversed sharply, as former winners tumble and heavily shorted stocks surge.