(Kitco News) - Volatility has started to rise in the gold market, and with prices trading near all-time highs, one trader sees growing risks of a major correction.
In an interview with Kitco News, Carley Garner, co-founder of the brokerage firm DeCarley Trading, said that not only is gold looking overvalued as prices push to $3,000 an ounce, but sentiment has also become extremely bullish.
“Two years ago, nobody wanted to touch gold. But now, everybody's long already. Everybody's very emotionally invested, and the sentiment is very lopsided,” she said.
Looking at gold’s technical picture, Garner said that gold’s price action is looking similar to its peak in 2011 when gold prices hit an all-time high above $1,900 an ounce and subsequently dropped sharply, trading in a depressed market until 2018.
“In 2011, we had three big waves up. Then, the peak in 2011 was followed by quite a bit of pain. And I think we're probably right there in that ballpark. We're seeing divergence on the charts with the RSI. What that means is that price rallies are making new highs, but the oscillators are not making new highs, and that's usually a sign that rallies should probably be sold into, not bought.”
Garner said that she was short on gold in mid-February and ended up taking profits last Friday as gold prices ended the week with a 3% loss. She added that, right now, she is neutral on gold.
“If we're right, and this is a top, it's a process. It's not going to just roll over and die; it's going to be messy, so I'd like to see one more rally to jump off of,” she said.
The comments come as gold prices have managed to push back above $2,900 in a safe-haven rally. Investors are reacting to a global trade war sparked by President Donald Trump’s tariffs on Mexico, Canada, and China.
Although gold is attracting a safe-haven bid as equity markets drop, Garner said investors should use some caution. She said the risk is that investors may sell their gold to raise cash to cover their equity losses and generate capital.
She said that in an environment of heightened economic uncertainty, she expects U.S. treasuries and cash to be the safe-haven assets that investors turn to.
“Treasury Secretary Scott Bessent has said that they aren’t worried about the stock market. The administration is worried about getting inflation lower and interest rates lower, and unfortunately, tipping us into a recession will fix both of those problems,” she said. “This will give us a good base to reset the economy and get it back to more traditional fundamentals, as opposed to just assets wildly inflating because there's too much cash in the system.”
As for how low gold prices can go, Garner said that she might start getting bullish again if prices fall to $2,170 or even $2,000.
“In 2011, when the market topped, it corrected 45%. Just to put that in perspective, a 45% correction would be around $1,650. I'm not saying we will get to $1,650, but I'm just saying we need to understand gold’s potential,” she said.
