Loading ...Gold – The More Hate, The More Bullish We Become
Taki Tsaklanos
August 3, 2015
After gold’s breakdown on Sunday July 20th, we have seen an avalanche of negative commentaries.
Admittedly, the breakdown does not bode well from a chart’s perspective. We have to get that straight. The technical breakdown is going to lead the price of gold in US dollar terms towards $1,000 /oz, potentially lower.
But if we compare this breakdown with the one in April and June of 2013, we would say the one from last week is a small dip on the long term chart while the one of 2013 was a real collapse. However, the negativity that was triggered by the latest small price drop is much stronger.
Consider the following mainstream media headlines of the last week:
“Let’s Be Honest About Gold: It’s a Pet Rock” by the Wall Street Journal
“Gold is Doomed” by the Washington Post
“Gold Is Only Going to Get Worse” by Bloomberg
“Two Reasons Why Gold May Plunge to $350 an Ounce” by Market Watch
“Gold’s tumble is far from over” by CNBC
“Deutsche Bank says gold’s fair value is $US750 an ounce” by AFR.com
“Wall Street Bets Gold Drops Below $1,000” by Barron’s
“Are There Any Reasons to Own Gold?” by Bloomberg
From those articles, we selected the three most impressive quotes:
“Gold is a weird relic of antiquity.”
“Gold won’t just drop below $1,000 an ounce but, eventually, to a far, far lower price as well.”
“Gold is out of fashion like flared trousers: no one wants it.”
News headlines are a great way to gauge sentiment. And they are simply telling a ‘hate story’ currently.
In particular, that one last quote of the ones above is very interesting: “no one wants it.” Really? Nobody? As in, “this time must be different?”
Let’s face it. Markets can become extreme, but markets do not remain endlessly at extreme levels. They also do not trade endlessly in one and the same direction.
Along the same lines, sentiment as measured by statistical methods is simply confirming what we see in the news headlines. Sentimentrader’s optimism index for gold stands at 12 on a scale from 1 to 100 (the latter being the highest value). And guess what, gold has currently the lowest reading from all assets (including currencies, commodities, stock market sectors).