Are There Enough Gold Bears for a Major Gold Bottom?

Apparently it can only get worse for gold: CNBC: “Gold headed to $800” — Bloomberg: “Don’t catch a falling knife” – Yahoo!Finance: “More pain coming.” Is that enough bearishness for gold to carve out a major bottom?

Gold sports a bullish RSI divergence and reached our long-term target of ‘new lows below 1,178.6’. Gold seasonality for November is bullish. Sentiment, seasonality and the bullish technical divergence increase the odds of an upcoming buying opportunity. “

That’s what the Profit Radar Report stated on November 5.

It’s probably safe to assume that gold’s $70 rally caught many by surprise.

  • Bloomberg: “Don’t’ catch a falling knife! ABN sees gold at $800 next year” – November 6
  • Yahoo Finance: “Gold bulls beware: ‘More pain coming’ before the metal finds a bottom” – November 10
  • CNBC: “Here’s why gold could be headed to $800” – November 12

I’m not implying that any of the above sources are dumb by any means, but when a strong consensus builds, the market usually does the opposite.

In my humble opinion, such bearish sentiment (the above headlines are just a small selection, confirmed by other sentiment extremes) was worth to take a stab at ‘catching the falling knife.’

Risk management is crucial when dealing with ‘sharp knives,’ so via the November 5 Profit Radar Report I recommended the following: “We will dip our ‘toes in the water’ and buy gold (futures) if it dips below 1,130 and moves above 1,140.”

As the chart shows, a dip to 1,130 followed by a move back above 1,140 required trade to fall below the descending green trend line (target) and rally back above minor resistance.

If the market is able to rally strongly after hitting a down side target, it generally has the strength to rally further. This approach limits risk.

Since the above gold futures move happened overnight, I included this recommendation for ETF traders in the November 10 PRR: “Today’s pullback offers a low-risk entry for the SPDR Gold Shares ETF (NYSEArca: GLD), as it retraced 78.6% of the recent bounce, and filled an open chart gap at 110.49. If a low of some degree is established, GLD should move higher from here.”

Gold is currently one of my favorite trades, and there should be another opportunity to jump in for those who missed the initial up move. Additional buy trigger levels will be discussed via the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, 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. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

The Missing Tell-Tale Sign of a Lasting Gold Market Low

The best time to buy is when there’s ‘blood on the street’ or when investors throw in the towel and all the weak hands are purged out. How can you tell when that’s the case? Here’s possibly the only way to identify the ‘puke point’ for gold.

Based on the Commitment of Traders Report (COT) and gold assets held in gold ETFs like the SPDR Gold Shares (NYSEArca: GLD) and iShares Gold Trust (NYSEArca: IAU), we know that investors/traders do not want to own gold right now.

In fact, both sentiment gauges have plunged to 5-year lows. Sentiment surrounding the precious yellow metal is bearish enough to spark a rally.

The big question is whether any rally will be fake and short or real and long.

At major market bottoms investors generally throw in the towel. Some call this the ‘puke point,’ where all the weak hands are purged out.

We’ve seen such a ‘puke point’ for the S&P 500 in March 2009 and once again in October 2011 (the Profit Radar Report identified both of them).

The opposite of the ‘puke point’ is the extreme infatuation seen around gold’s nominal all-time high in September 2011. Everyone wanted to own it. When everyone is scrambling to buy an asset from you, it’s best to give it to them.

Via the August 24, 2011 Profit Radar Report I warned subscribers that: “I don’t know how much higher gold will spike, but I’m pretty sure it will melt down faster than it’s melting up. We should see sellers en masse.”

Unlike the S&P 500, gold has been in a bull market for most of the 21st century. This means that data mining for past market bottoms is difficult, especially when looking at gold ETFs with price history limited to eight years.

Nevertheless, the chart below should be helpful in spotting a lasting gold bottom.

The chart plots the price of gold against gold (in tons) held by GLD and IAU.

The red graph at the bottom shows the 5-day average combined trading volume for GLD/IAU.

Gold assets have been in freefall mode. This shows us that gold may be oversold, but that’s about it.

The volume data is much more insightful. There’s been a volume spike at every prior gold low – the puke point. But there hasn’t been a volume spike recently.

The absence of obvious mass surrender suggests that a lasting gold bottom has yet to be seen. My most recent Profit Radar Report includes ideal targets for this major gold low along with short-term key resistance.

Simon Maierhofer is the publisher of the Profit Radar ReportThe 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).

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.