Cart (0)
VIDEOThe Case for Imminent Upside Explosion in the Gold Complex
It's coming much sooner than anyone expected.
 |
|
Thus, if the reports of $2 billion or more in redemption requests for Paulson’s funds at the end of June are correct, then the recent plunge in gold and the weakness in gold equities that has occurred (all peculiarly in the face of the dollar’s recent weakness) could certainly, at least in part, be explained by this one hedge fund being forced to liquidate various gold-related investments in order to meet redemption requests.
When we combine this information with the fact that sentiment is extremely bearish in gold at the moment, it’s further evidence of a setup for a rocket-like rally to develop soon in both gold and the gold equities, which is also not so coincidentally what normally follows a “Pre-Print Panic” in the gold complex. Let me explain…
Consider that the Hulbert Gold Newsletter Sentiment Index (HGNSI) collapsed 14.3 points on Wednesday to just 9.2%, or just 9.2 points from indicating most gold timers are actually net short gold. The last time this sentiment index was this low was on August 28, 2009, which was just two business days before gold exploded on September 2 and rallied $200 over the next three months.
Even Market Vane’s bullish consensus has collapsed to 63% after never even sniffing the levels that it normally does at typical intermediate peaks in gold. And by what I suspect is not a coincidence, the last time this particular sentiment indicator was at this level was also August of 2009.
In other words, we may actually surprise a large number of veteran gold bulls that are currently underexposed to the gold complex due to their reliance on seasonal tendencies for gold that are normally a function of the seasonal nature of Indian jewelry demand. However, investment demand is currently the primary driver of the gold market, not Indian demand. Indian demand has actually been weak all year, just as it was last year.
Combine all of that with a weak dollar and a Fed that's going to need to start printing money again soon (see the Washington Post for another not-so-subtle hint from Bambi as to what is coming), and we have all the ingredients for an upside explosion to develop in gold much sooner than most are expecting (including myself).
I hadn’t actually expected any sort of wild upside for gold and gold stocks until after the FOMC in August, where presumably the Fed would indicate that it was returning to more money printing operations, even though my expectation was that gold and gold stocks would likely move higher in anticipation of that Fed announcement.
However, in light of all this new information regarding sentiment and the fact that forced sales by this single hedge fund may have been largely responsible for gold’s recent divot, upside acceleration for gold and gold stocks could come a lot sooner than I've been expecting.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
