Two gold sentiment gauges have plunged to 5-year lows as investors can’t get out of gold ETFs fast enough. Extreme sentiment often sends prices higher, but the big tell-tale sign of a major low is still missing.
Is gold sentiment bearish enough for a sustainable snap back rally?
There are dozens of sentiment indicators related to broad stock market indexes like the S&P 500 (NYSEArca: SPY), but there are few for precious metals.
We looked at one of them – the Commitment of Traders Report – on December 6. Large speculators had dialed down their long futures exposure to the lowest level in five years (see chart and article here: COT Report: Large Speculators are Giving up on Gold).
Large speculators (whether it’s S&P 500 or gold) generally find themselves on the wrong side of the trade, so today’s gold bounce makes sense. But is it just a relief rally or the beginning of something big?
Here’s another, in the past reliable, sentiment gauge: Investors commitment to own gold ETFs like the SPDR Gold Shares (NYSEArca: GLD) and iShares Gold Trust (NYSEArca: IAU).
According to data from State Street (SPDRs) and BlackRock (iShares), GLD and IAU held over 1,550 tons of gold earlier this year, an all-time high.
Since then however, investors have been rushing out of GLD and IAU as the combined total of gold held dropped to 1,004 tons.
Is there a correlation between GLD and IAU’s combined assets and gold price lows?
The chart below plots the price of gold against the combined total tons of gold held by GLD and IAU.
In times past, there’s been a high correlation between gold assets and gold price lows.
However, since early this year gold ETF assets have been declining without letup.
Almost every week/month has seen a new low.
Sure, when viewed in hindsight the actual gold asset low may mark a gold bottom, but unfortunately hindsight isn’t an investment strategy.
There hasn’t been a gold bear market in well over a decade. We don’t have any bear market gold ETF data, so at this point guessing how much more money investors will yank out of gold ETFs is tougher than identifying solid support for gold.
Based on the COT report and gold asset data, sentiment is bearish enough for a bounce, but we are still lacking the tell-tale sign of a lasting bottom.
This tell-tale sign accompanied all gold market lows since 2005 (see chart).
An enlarged chart and full explanation of this tell-tale sign is available here:
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. We are accountable for our work, because we track every recommendation (see track record below).
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