Minyan Mailbag: Gold Sentiment
A look inside negative sentiment in the gold market and what it could mean...
Editor's Note: This article was written on Thursday, May 17, 2007:
I really enjoy your writing on Minyanville---it's refreshing to read someone whose convictions aren't compromised by random noise or subjective technical movements that immediately render all research and thought null and void.
On the subject of gold/gold stocks and following up on your post last week, I was wondering what else you used to gauge sentiment toward the group. I don't want to be dismissive or naïve, but it seems like the CTFC reports have lost a good deal of value in the last year. I know it has been suggested that there's a high level of bullishness in the group, but it's sure hard to believe watching the relentless selling in a lot of these juniors as well as the bigger ones. It's pretty frustrating to watch especially as the speculative juices in the market seem to be pumping as hard as ever.
Thanks again for your insight.
Technical analysis certainly can help with timing, but I agree it does nothing for you fundamentally. "Breaking a trendline" for example, doesn't change much for the gold picture, although it could change the "timing". However, the chart will have to be repaired before a renewed advance can take place.
As for the CFTC, I agree. I used to follow it religiously with respect to gold, but around late 2005, it ceased to be of any predictive value. There could be a variety of reasons for this, but it really doesn't matter why.
With the XAU/Gold ratio hovering just above 0.2, which has been near the low for the range for gold's bull market, I find it difficult to say that gold bulls are "excited."
Secondly, the HGNSI (which is a poll of gold market timers) collapsed last week to nearly 0 from +75 two weeks early, meaning that most gold timers are now recommending no long gold exposure or are, in fact, net short (i.e.- the HGNSI is negative), which is where it may be as of today.
Thirdly, despite the fund's price being back near its all-time high last May, RYDEX gold fund's cumulative net cash flow indicator hit a new multiyear low last week.
I can tell you, anecdotally, that I get a lot of emails regarding gold. At the moment the vast majority range between "despair and disgust."
Now, put all of this negative sentiment within context. The monthly close in the London PM fix for gold hit a new all-time high last month and the US dollar index is just a couple points away from making new all-time lows. Both of these occurrences would, in essence, be an "end" in many respects to the fiat dollar based monetary system that has been in place since the last system (Bretton-Woods) broke down when the US closed the gold window in 1971.
When looking from that perspective, I can't imagine a more bullish setup for gold (and even more so the mining shares) from both a sentiment and fundamental view. But that's just me.
Hope that helps...
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