(Kitco News) - Although gold has managed to hold critical support above $4,000 an ounce, the rally over the last two months has been irrational, according to one trader who remains bearish on the metal.
In an interview with Kitco News, Carley Garner, co-founder of the brokerage firm DeCarley Trading, reiterated her call that gold prices have topped, even if her initial bearish outlook proved a little premature.
Garner turned bearish on gold when prices broke through $3,000 an ounce. However, her trade hasn’t worked out very well. Within 30 weeks, gold managed to hit new all-time highs above $4,000 an ounce. At the same time, gold’s unprecedented rally has created a volatile environment, as prices earlier in the week saw their biggest selloff in years.
Garner said that while gold has not fallen as she initially expected, the volatility is causing the most pain in her bearish trade.
In complex trading, Garner said that she is using micro-gold futures to hedge her put options to remain delta-neutral.
“We are just kind of trying to ride out the volatility, and if it starts to settle, we could be in a position to get out of this trade with at least our shirt,” she said.
However, she added that her original thesis—that gold is overbought—remains firmly in place. She explained that the last $1,000 of the rally has been extremely irrational. Gold, she said, has become a major momentum trade rather than a value or wealth play.
“I think a lot of people in the gold market have confused investing with trading and were just chasing the momentum,” she said.
She noted that she has spoken to some broker-dealers who said that retail traders have been chasing gold using small contracts like micro-gold futures, which are one-tenth the size of a full contract, mini-futures contracts that are half the size, and one-ounce futures.
The conversations she has had with other brokers align with recent data from the CME, which reported record volume last week in these smaller contracts. Friday’s record surpassed the previous record set less than 10 days earlier.
“I believe this is the buying that really propelled prices,” she said. “A few people with $2,000 or $3,000 in their account—they’re not going to move the market. But if you have thousands of people with a $3,000 account hitting the buy button, that is going to have an impact. It turned gold from a traditional commodity into a meme stock, and that is not sustainable.”
To illustrate how irrational gold has become, Garner said that some investors were buying $5,000 April gold call options for $10,000 each.
“The only way for these investors to make money is if they hold gold to expiration and gold is more than $100 higher than the strike price. At $5,100, they are breaking even.”
While Garner is trying to navigate the market volatility, she said she expects gold prices to fall to better reflect current economic conditions.
Although the Federal Reserve is expected to continue cutting interest rates through the first half of 2026, Garner said that inflation expectations remain relatively modest and the threat of a recession remains low.
“My bearish case for gold is that the market has pulled all the fundamental drivers forward, and now everything needs to balance out,” she said. “This is what we saw in 2011. We expect to sell on big rallies.”
