Gold is heavily oversold and the bulk of the selling is probably behind us, according to Paul Wong, managing partner and market strategist at Sprott Inc. He expects a cyclical bottom before September, with currency debasement as the force that drives the metal to its next record. Wong made the comments in an interview with Kitco News.

Wong pointed to a technical rule of thumb that gold tends to find support when it drops to 90% of its 200-day moving average, a level the metal has already blown through. But he said the case rests on more than one indicator. “Internally, I have five or six other measures that show minus two or minus three standard deviations oversold,” he told Kitco News. “Add them all up, and what does it mean? It means that it’s harder and harder to push down the price of gold.”

He was careful about what that signals. “It doesn’t mean it’s the low, it just means the bulk of the selling is probably done,” Wong said. Positioning backs that up, in his view. CTAs have gone flat, CFTC long positions have fallen back to 2018 levels, and outflows from European and North American ETFs have been more than offset by growth in Chinese holdings.

Waiting for a catalyst

A rebound still needs a trigger. “What is it going to get to spark it back up? That’s the whole thing,” Wong said. He noted that gold usually bottoms in summer, with early August the average seasonal low, though last year the turn came at the end of August around the Jackson Hole meeting. Gold then ran from $3,600 to roughly $4,500 before falling back.

Wong expects something similar this year. “Probably sometime in August, whether it’s Jackson Hole or something sooner, or something blows up in the Middle East, or the bond market goes bonkers,” he said.

The bond market decides

For Wong, the real pressure sits in government debt. He put US debt at $39.5 trillion, up $3.8 trillion over roughly the past year, with interest expense now exceeding military spending. Bond yields in the United States, Germany and Japan are all pushing higher, he said, and central banks are running out of room.

“You’re going to have to give up something,” Wong said. “Either you lose control of the bond market, but you can’t because you have to keep financing the debt, or you debase the currency. That’s the heart of the debasement trade. It’s still on, it’s still there, and the pressure’s still building.”