Investors are cautious of the overheated market, as gold mining stocks have followed the sharp drop in gold prices. "Smart money" has already withdrawn in large numbers.

After a sharp drop in gold prices on Tuesday, investors who withdrew $669 million from the largest ETF tracking gold mining giants last month now appear particularly smart. Data shows that after spot gold plummeted 6.3% on Tuesday, marking the largest single-day drop in over 12 years, the VanEck Gold Miners ETF tracking gold miners plummeted 9.4% on Tuesday, marking its largest single-day drop since March 2020. Newmont Mining (NEM.US), Agnico Eagle Mines, and Barrick Mining (B.US) all dropped by over 9%. Newmont Mining and Agnico Eagle Mines reversed their gains from the past week in just one day on Tuesday, while Barrick Mining even reversed its gains from the past month. There have been numerous warnings in the market that the rise in gold prices has significantly detached from fundamental realities. For gold mining companies, the situation is even more exaggerated, with their stock prices increasing almost twice as much as the price of gold itself. Candice Bangsund, portfolio manager at Fiera Capital Corp., said, "The rise in the gold sector, especially for large mining companies, may have increased too quickly, especially considering that the price of gold has only risen by half." This viewpoint is widely accepted on Wall Street, but accurately timing a pullback after a strong rally can also be risky. Market professionals say that this situation may be a "blow-off top" in a bull market - the most vigorous rise in a surging market often occurs just before a sharp fall. It is currently difficult to judge whether Tuesday's sharp drop marks the beginning of a long-term decline in gold and gold mining stocks, or if it is just a temporary episode. Investors in the VanEck Gold Miners ETF withdrew $668.6 million in September, marking the largest monthly outflow in five months, indicating that some investors have begun to doubt the sustainability of this rally. Nevertheless, the fund has still risen by 115% year-to-date. The stock price of Newmont Mining, the largest gold mining company in the U.S., has risen by 131% year-to-date. Nancy Tengler, CEO and CIO of Laffer Tengler Investments, believes that this withdrawal of funds is "reasonable." She said, "I have been bullish on gold for many years, but the current situation keeps me up at night. Gold has now become a 'risk-free trade,' and no one questions whether it is overvalued." She predicts that if the Federal Reserve does not implement two interest rate cuts as expected by the market, the prices of gold and gold mining stocks may stabilize in the coming months. What is more worrying is that prices of precious metals like gold have begun to show violent fluctuations, a market sector that has long been seen as a stable safe haven is now experiencing turbulence. On Tuesday, the actual volatility of gold prices relative to the S&P 500 index reached its highest level since 2020. John Ciampaglia, CEO of Sprott Asset Management, said, "As investors continue to take profits, daily fluctuations will be very intense in the short term." However, he added that as long as these fluctuations and sharp price movements do not lead to forced selling in a chain reaction, triggering a larger-scale sell-off, he still believes in the strong long-term prospects of gold mining stocks, and that the performance in the third quarter will be strong, "as costs decrease and gold prices remain at record highs." It is reported that Newmont Mining will announce its third-quarter performance on Wednesday, Agnico Eagle Mines will release its financial report next week, and Barrick Mining will not announce its latest performance until November. Of course, derivatives market traders are still betting on further rises in gold and gold mining stock prices. Last week, the options trading volume of the SPDR Gold Shares fund reached a record high, with most buyers being bullish investors "chasing the rise of gold through options." However, these bets now may be premature. Jay Kaeppel predicts that while gold mining stocks may continue to benefit from rising gold prices, these stocks are still highly speculative assets, so a stronger US dollar could trigger a selling frenzy. He said, "When the sell-off comes, my guess is that the gains of one or two months could evaporate in just a few days, and then the market will decide its next move."