'Sell Gold!' They Say…

The WSJ reports that J. Paulson – James, not John – of Wells Fargo the 'tireless stock market bull' as the WSJ refers to him, who recommends that people should sell their gold:

 

„In a note this afternoon, he argues that while gold is nice as a portfolio diversifier, “gold weightings should be scaled back in most portfolios” as the economic recovery lifts confidence across the economy.

Mr. Paulsen trots out no fewer than six ways to value gold, a notoriously slippery exercise given the dearth of traditional investment metrics available on the barbarous relic. And in each one of those six calculations — gold vs. Stocks,  gold vs. Treasurys, gold vs. home prices, gold vs. worker pay, gold vs. CPI, gold vs. other commodities — gold comes out looking as expensive as it’s been in, oh, the past 50 years.

Mr. Paulsen admits that valuation metrics in general aren’t enough to actually cause a shift. After all, overly expensive things can stay overly expensive, and overly cheap things can stay that way too. But he argues that fear — to his mind, the single biggest reason to buy gold — is fading fast as the U.S. recovery steamrolls on.

Gold, he writes, “is an investment which today seems far too popular among the masses, appears extremely overvalued relative to most other asset classes and faces a challenging environment should economic confidence slowly improve in the next several years.”

Or…you can take Goldman’s advice and buy gold.“

 

(emphasis added)

As it were, gold's purchasing power against commodities and many other things has indeed vastly increased – as always happens during secular economic contractions. However, it has clearly been much higher relative to the stock market than it is today in the past. Contrary to Mr. Paulson, we believe that particular move probably has much further to go. Stocks could easily lose another 80% to 90% against gold before the gold bull market is over.

It is true that gold tends to struggle in the face of improving economic confidence. However, we happen to believe that the recent improvement in economic confidence may already have hit a peak and is bound to worsen again from here. Goldman Sachs bases its bullish call on gold on the fact that real interest rates continue to be deeply negative – and there is indeed a very good case to be made both theoretically and empirically that gold tends to rise when this condition pertains.

The idea that gold is 'too popular among the masses' meanwhile is risible. As you will see further below, the overall bullish consensus on gold has just hit the lowest point in a decade. Moreover, the 'masses' have certainly not bought gold at all – on the contrary, they have sold theirs to slightly dubious outfits like 'Cash-4-Gold'. In fact, of the entire universe of financial assets in the whole world, only between 0.2% to 0.8% (depending on whose estimates one believes) are currently represented by investments in gold and gold-related assets. That's just slightly above 'nothing'.

 

Gold Sentiment

Jason Goepfert at sentimentrader has constructed a new gold sentiment score, which consists of a mixture of survey data and positioning data (everything from futures CoTs to Rydex positioning to the HGNSI to Consensus Inc. is included).

This indicator has just recently hit its lowest level of the past decade, as incredible as that may sound. Here it is:

 


 

Sentimentrader's composite gold sentiment score: at the beginning of the year it has hit a one decade low and currently remains not far above it – click chart for better resolution.

 


 

Concurrently, the HGNSI (Hulbert Gold Newsletter Sentiment Index) has hit a new low for the move at minus 16. So we can probably say that sentiment on gold is currently as bad as it gets. This can not be based on gold's price action however, as both the chart above and those below reveal:

 


 

Gold in euro terms: tagging the 200 day moving average. This chart remains bullish – click chart for better resolution.

 


 

Gold in dollar terms looks only slightly less convincing, but to call this chart bearish would really be a stretch – click chart for better resolution.

 


 

The HUI's 'morning star' candle formation has failed to produce follow-through buying, but we note that the index has put in a bullish 'inverted hammer' yesterday – so it appears to continue to try to put in a low here:

 


 

The imperfect  'morning star' didn't work out – but maybe the 'bullish inverted hammer' will? – click chart for better resolution.

 


 

It seems highly likely that it is the action in gold stocks that has turned so many people bearish on gold (or perhaps the action in the gold stocks is a result of the growing bearishness on gold – most likely it is actually a feedback loop).

Meanwhile, sentiment on the sector remains at rock bottom as well:

 


 

There is still extreme pessimism on gold stocks. This is usually a bullish sign – click chart for better resolution.

 


 

However, there still is one reason to be worried about these recent developments in the sentiment data: as J. Goepfert points out, sentiment has made progressively lower highs while gold itself has made higher highs at the same time – this is the mirror image of the bottoming process in 1998-2000, when progressively higher lows in the sentiment score were recorded concurrently with lower lows in the gold price.

Another parallel to that time period is the 'double non-confirmation' with the silver price. In the late 1990's, silver and gold bottomed out at different dates – their lows were separated by almost two years. Recently, silver made a top in April of 2011 and gold in September of 2011.

So these are slightly worrisome facets, but the 'non-confirmation' could of course easily be erased in a rally. 

 

Charts by: StockCharts.com, SentimenTrader.com


 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “Gold and Gold Sentiment”

  • roy_partridge:

    Since it’s the composite sentiment indicator that is making lower highs as gold made higher highs, I wonder if the sentiment figures for gold stocks (which did not rally and sentiment is at lows) are causing the lower highs in the composite indicator.

    At the start of the bull marker, gold and gold stocks were all making lows.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Gold Debate – Where Do Things Stand in the Gold Market?
      A Recurring Pattern When the gold price recently spiked up to approach the resistance area even Aunt Hilda, Freddy the town drunk, and his blind dog know about by now, a recurring pattern played out. The move toward resistance fanned excitement among gold bugs (which was conspicuously lacking previously). This proved immediately self-defeating - prices pulled back right away, as they have done almost every time when the slightest bit of enthusiasm emerged in the sector in recent...
  • Monetary U-Turn: When Will the Fed Start Easing Again? Incrementum Advisory Board Meeting Q1 2019
      Special Guest Trey Reik and Board Member Jim Rickards Discuss Fed Policy On occasion of its Q1 meeting in late January, the Incrementum Advisory Board was joined by special guest Trey Reik, the lead portfolio manager of the Sprott Institutional Gold & Precious Metal Strategy at Sprott USA since 2015 [ed note: as always, a PDF of the complete transcript can be downloaded further below].   Trey Reik of Sprott USA.   Also at the meeting, Jim Rickards, who is inter...
  • Acting Man Returns - A Brief Housekeeping Note
      Pater Temporarily Keels Over Regular readers have no doubt noticed that the blog has fallen silent for around three weeks and may be wondering what has happened. In a nutshell, we were hospitalized. After a lengthy time period during which our health gradually but steadily deteriorated (we have complained about this previously), we finally keeled over. Thereupon we were forced to entrust the ruin that houses our mind to an experienced team of doctors (depicted below).   A...
  • Watch Europe - Free Pass for the Elliott Wave European Financial Forecast
      Europe at an Important Juncture European economic fundamentals have deteriorated rather noticeably over the past year - essentially ever since the German DAX Index topped out in January 2018. Now, European stock markets have reached an important juncture from a technical perspective. Consider the charts of the Euro-Stoxx 50 Index and the DAX shown below:   The Euro-Stoxx 50 Index already peaked in early November 2017, the DAX followed suit in January 2018 – such divergent peaks...
  • Why Warren Buffett Should Buy Gold
      Riding the Tailwinds of Fiat Money Inflation to Fame and Fortune Warren Buffett bought his first shares of stock when he was 11 years old.  He saved up $114.75 and “went all in,” purchasing three shares of Cities Service preferred stock.  The day was March 11, 1942 – nearly 77 years ago.  Buffett recently reminisced about this purchase in his annual letter to shareholders:   “I had become a capitalist, and it felt good.”   The Oracle of Omaha – he was...
  • Fake Money’s Face Value Deceit
      Not the Brightest Tool in the Shed Shane Anthony Mele stumbled off the straight and narrow path many years ago.  One bad decision here.  Another there.  And he was neck deep in the smelly stuff. These missteps compounded over the years and also magnified his natural shortcomings.  Namely, that he’s a thief and – to be polite – a moron.   Over-educated he ain't: Shane Anthony Mele, whose expressive mug was captured by a Florida police photographer first in...
  • Rise of the Zombies - Precious Metals Supply and Demand
      Rise of the Zombies - Precious Metals Supply and Demand Last week, the prices of gold and silver fell $35 and ¢70, respectively. But what does that mean (other than woe unto anyone who owned silver futures with leverage)? The S&P 500 index and the euro was up a bit, though the yuan was flat and copper was down. Most notably, the spread between Treasury and junk yields fell. If the central banks can lower the risk of default premium, they can make everything unicorns and...
  • Bitcoin Bottom Building
      Defending 3,800 and a Swing Trade Play For one week, bulls have been defending the 3,800 USD value area with success. But on March 4th they had to give way to the constant pressure. Prices fell quickly to the 3,700 USD level. These extended times of range bound trading are typical for Bitcoin Bottom Building in sideways ranges. This 60 minute chart of Bitcoin shows (represented by the yellow candlestick wicks) how the bulls defended 3,800 USD :   BTCUSDT 60 minute chart...
  • The Magic Doesn't Always Work - Precious Metals Supply and Demand
      The Week Ends with a Surprise The weekly closing prices of the precious metals were up +$5 and +¢11. But this does not tell the full story of the trading action. Prices were dropping until Friday. More precisely, Friday 8am in New York, or 1pm in London.   Gold and silver - back in demand on Friday... [PT]   At that moment, a light cabal conspiring to jack the price struck traders began buying. The end result was the prices, especially of silver, rose on the day...
  • Intraweek Profit Opportunities
      In 6 of 10 Countries a Single Day Outperforms the Entire Week! In the Seasonal Insights issue of 13 February 2019 I presented a study illustrating the power of intraweek effects. The article was entitled “S&P 500 Index: A Single Day Beats the Entire Week!” The result of the study: if one had been invested exclusively during a single day of the week since 2000  – namely on Tuesday – one would have outperformed a buy and hold strategy, beating the broad market. Moreover,...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!