I wrote a bullish piece on gold for Seeking Alpha last September 6. My main argument for the bullish posture was the commitment of traders report. If you’re not familiar with the commitment of traders report, it is released by the Commodity Futures Trading Commission each Friday and it shows the net positions of three different groups—large speculators, small speculators, and commercial hedgers. Last September, large speculators were net short gold futures. The last time this group was net short was in December 2001.

Since I put that article out last year, gold has rallied from the $1,200 range to move above the $1,500 level this month. The last time gold was over $1,500 an ounce was in April 2013 and at that time the price was trending lower from its all-time high above $1,900.

Looking at the monthly chart for gold, I couldn’t help but wonder if the rally has moved the price up too much, too fast. We see the move on the chart below and we also see how the overbought/oversold indicators have moved into overbought territory in the last few months.

The overbought levels don’t bother me a great deal by themselves, if you look back in the 2010-2011 time frame, the indicators were in overbought territory for extended periods as the price continued to climb.

There is a trend channel that has formed over the last five years with the upper rail connecting the highs from December 2014 and the highs from the summer of 2016. The lower rail connects the lows from late 2015 and mid-2018.

Gold just moved above the upper rail in the last few days as the trade war with China has heated up again. We also have the inverted yield curve that is probably helping to push gold higher as well. There are uncertainties about Britain leaving the EU and tensions between China and Hong Kong at this time as well. Add all of these things up and investors start looking for safe haven investments and gold has been considered a safe haven for decades.

In addition to the big rally in gold, there has also been a big spike in bullish sentiment toward gold. In this past week’s commitment of traders report, large speculators were net long 299,993 contracts—just shy of 300,000 contracts. The only time large speculators have been net long more than 300,000 contracts was in June 2016.

This is a long-term chart of gold with the commitment of traders report at the bottom. I circled the only time in history we have seen such optimism from large speculators. I also circled where gold was at the time.

While the rally in gold doesn’t look like it wants to slow down, I am a little worried that it has gotten out of hand. If the overbought levels on the chart were the only thing that was a concern, I would shrug it off. If gold hitting the upper rail of the channel was the only thing, I would shrug it off. But when you see the overbought readings from the oscillators, the fact that gold is hitting the upper rail of a channel, and you see bullish sentiment that is the second highest level ever—now you have concerns about the rally stalling.

While the fundamental backdrop isn’t all that great with all of the geopolitical uncertainties, I think is going to struggle a little for the next few months. I wouldn’t necessarily recommend shorting gold, but if you own gold or a gold ETF, you might consider taking some profits. The price could drop a little or consolidate for an extended period and that would allow the lower rail and the moving averages to catch up to the price. A small decline or a consolidation would likely be enough to remove some of the bullish sentiment and in the long run that would be a good thing for gold bulls.

As a contrarian, I don’t like holding investments where there is extreme optimism because when the sentiment shifts it can do so in a hurry and the price can drop sharply. Conversely, when I am looking to enter an investment, I prefer entering when there is extreme pessimism because that sentiment can shift and push the price higher. Right now does not look like a great buying opportunity for gold.