Gold blows past $4,000. Time to dial down optimism?

DSP’s model indicates that in previous cycles, gold traded 40 percent above its theoretical value. So, while further upside can’t be ruled out, investors face a classic risk-reward dilemma. Those heavily overweight in gold may consider trimming exposure by 5 percent weekly, selling into strength between $3,860 and $4,000, to rebalance portfolios.

Silver, on the other hand, still offers relative value. It is trading around $47 an ounce, below its theoretical midpoint of $64. "Taking some profits off from now (at $47) to close to
low end of $53 is advisable," the report said.

Interestingly, gold’s long-term performance now rivals equities. Its 10-year compound annual growth rate (CAGR) is approaching equity-like returns. However, investors must remember that every bull market has its phases. Even in past upcycles, gold witnessed sharp drawdowns of 15–25 percent. The last major correction in 2008 saw a 26 percent fall during the global financial crisis, largely due to forced selling by leveraged investors.

With the gold rally built on a mix of macro uncertainty, institutional buying and currency weakness, the next leg could be volatile. While this isn’t a signal that the gold bull run is over, meaningful pullbacks are likely. For patient investors, such dips could present better re-entry points.

Gold investors need to temper optimism with prudence. As Netra’s said when the trend is kind to your portfolio but the margin of safety is eroded, it may be time to say, “thank you, but no thank you”.