Gold Fails to Break Support Despite Extreme Negative Sentiment
Despite all of the bearish sentiment, the panic, and the bad-mouthing, gold has maintained its consolidation.
In addition, gold is showing a bit more strength when priced against the other currencies. A simple way to chart gold against the inverse of the US dollar is to use the PowerShares DB US Dollar Index Bearish ETF (NYSEARCA:UDN). If gold was in real trouble then we'd see greater weakness against the other currencies. This chart and the preceding chart tell us that we can attribute some of gold's weakness to US dollar strength.
It's clear that anyone who doesn't believe in gold for the long-term has sold, and judging from the sentiment indicators, gold is now in much stronger hands than when it was trading at these prices at the 2012 and 2011 lows. Thus, if gold is able to hold this support and turn higher, it should approach $1750 to $1800 faster than one would think.
Could the mining stocks be leading gold lower? It is possible but the HUI has bounced from major support at 337 which I identified several weeks ago (see Now's the Time to Buy Precious Metals). In fact, this was a very strong target because it was within half of a percent of the 50% retracement of the entire bull market and the 62% retracement of the 2008 to 2011 cyclical bull market.
Interestingly, as I watch one of the Bloomberg videos, I see that one of the recommended videos is titled: "You Need to Buy Equities. Really?" Equities are four years into a cyclical bull market and facing very strong resistance with hedge funds and professionals as bullish as they were in 2007. Back then, everyone cited the Fed's money printing as a reason why equities would continue to make new highs.
Meanwhile, the precious metals complex is arguably at its most bearish sentiment since the start of the bull market 12 years ago. Either the bull market is over, or this will prove to be a tremendous buying opportunity. At the same time, gold hasn't even broken support or made a new 52-week low. It shows you the amazing strength of this bull market. Despite all of the bearish sentiment, the panic, and the bad-mouthing, gold (and silver) has maintained its consolidation. This year will go down in history as one of the best buying opportunities for both the metals and the stocks. Regarding the stocks, you should begin your research with companies that are well funded and that have not broken to new 52-week lows.
Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
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