UBS, in its annual poll of central bank and sovereign wealth funds found nearly a quarter of central banks believed gold would become the most important reserve asset in the next 25 years.

At its annual seminar for sovereign institutions, UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions with more than $8,000 billion in assets.
Asked what the most important reserve asset would be in 25 years, roughly half of polled officials chose the U.S. Dollar, but 22% pointed to gold. Bullion was the second most popular response, well above others such as Asian currencies or… the Euro.

Analysts also said Asia’s central banks, from India to the Philippines, were the most likely to buy gold. They added that central banks and, crucially, sovereign wealth funds in the Middle East were also keen on gold, although some bankers pointed out that sovereign wealth funds were more likely to be tactical buyers, seeking price appreciation, rather than strategic buyers seeking diversification and long-term security.

These days it is popular and conventional to be a contrarian. It seems that almost everyone tries to figure out what everyone else is thinking/doing so that they can then do the opposite. Right now, for example, it seems that almost everyone thinks that almost everyone else is bullish on gold, and, therefore, that it’s a good idea to lean the other way. Of course, if the majority is either bearish or anticipating a major bull-market correction on the basis that too many people are bullish, then most market participants are actually NOT bullish.

Now, sentiment is just one piece of a large puzzle, so just because sentiment is not particularly bullish — contrary to the beliefs of many pseudo-contrarians — doesn’t guarantee that the gold price won’t drop to much lower levels over the months ahead. It simply means that sentiment is not a headwind for gold at this time.

One of the reasons the gold bull market has far more time and room to run is that people have bubble fatigue. With numerous bubbles blowing up in the last ten years, Wall St and the public are quick to declare anything a bubble despite their inability to understand and analyze sentiment. Hence, we hear asinine concerns about too many advertisements. Tell me; are bonds in a bubble only because Pimco is advertised around the clock on CNBC?

Unlike these armchair analysts, we use a handful of sentiment indicators that are far more reliable and actionable.

Sentimentrader.com’s public opinion is simple but effective. It shows what percent of the public is bullish. Their data shows that the public was actually more bullish on Gold from 2005-2008 as public opinion spent a fair amount of time in the range of 75% to 90% bulls. In the last 24 months public opinion has yet to surpass 75% bulls.

COT data is another way to gauge sentiment. Did you know that open interest is about the same as where it was at the 2008 peak? Gold has climbed nearly 25% yet open interest hasn’t accelerated the way it did in late 2007.

We also track put-call data from the International Securities Exchange. Below is an updated chart of GLD’s put-call. As you can see, it has been quite reliable.

Why do we focus so much on sentiment? Sentiment is more important in the precious metals markets as they are emotionally driven. Sentiment helps us predict and measure potential volatility. It helps us gauge short and medium term risk.

Even after 20 months of record gains in the precious metals and related shares, sentiment remains relatively favorable. In fact, it looks better relative to 2006 and 2008. With the collapse of 2008 still fresh in mind, investors are quick to worry and that worry is sustained and enhanced by the sustained advance in the metals and shares.

Of course the misguided and ill-informed think the spectacular recovery is an aberration.  Not once have they said it’s a bull market. We have to remember that your typical trader, broker, analyst has never witnessed a bull market in Gold. They think the days of the 80s and 90s are the norm. Throw in the “bubble fatigue” as a result of the past 10 years and there will be plenty of skepticism as Gold soars to $2000/oz and higher in the next 12-18 months.

For complete sentiment and technical analysis and fundamental analysis on the gold and silver stocks, consider a free 14-day trial to our premium service.

Best of luck!

Jordan Roy-Byrne, CMT

http://www.thedailygold.com/newsletter

Jordan@TheDailyGold.com

We contrarians cringe when sentiment gets too frothy, gold is pumped on CNBC and a respectable titan of the conventional investment world speaks of gold as an “asset class”. We cringe, but also realize that at some point in the process, the public is gonna go all-in. At least that’s the script that is usually followed.

Source: http://biiwii.blogspot.com/

Consider the average recommended gold market exposure among the gold timers monitored by the Hulbert Financial Digest (as judged by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). It currently stands at 37.8%.

To put that in perspective, consider that the HGNSI stood at 60.9% early this past January, and got as high as 68% this past December — even though gold bullion on those earlier occasions was trading for as much as $100 per ounce less.

It’s really quite amazing that the gold timers today aren’t more bullish. During last Friday’s trading session, when bullion broke out to a new all-time high, the HGNSI didn’t budge. And it rose only 7 percentage points as gold briefly traded at an even higher level on Monday.

Just imagine how euphoric stock market investors would become if the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,210, -88.12, -0.86%) were to have just traded above its previous all-time high of 14,165. There’d be dancing in the streets.

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Gold

Gold remains on track (as far as our template).  Here is the potential bullish outcome.  The longer Gold holds above $1160 and that trendline, the more likely the bullish outcome.

Sentiment remains supportive.  See the GLD put-call below.  Also, public opinion from sentimentrader.com is 69% bulls.  Interim tops have occurred at 75% while significant tops at 85%.  Consolidation for another month or two would leave public opinion near 60% bulls.

Gold Stocks

This is an interesting juncture for the gold stocks.  There is enough evidence to make a case that the recent low will hold.

Note that the bullish percent index is at 45% (neutral to slightly oversold).  Note that the 7-day GDX put-call is at a level consistent with bottoms.  Note the put-call spike on Friday.  Consider that gold stocks are performing well in real terms.  Also consider that the HUI has twice recently held above both the 100 & 200 day-MA’s.

Initial support is 425-430, with very strong support at 380-400.  Initial resistance is now 470-475.

Here is the GDX put-call data we referenced above.

Jordan Roy-Byrne

http://www.thedailygold.com/newsletter

Jordan@TheDailyGold.com

Since early 2009 we’ve written about the super-bullish long-term cup and handle pattern in Gold. It dates back to 1980 and has a logarithmic target of about $2,100. We noted that previous cup and handle patterns in Gold all reached their logarithmic target¹. We expect that this move to $2,100 will be the recognition move that awakens the masses to the Gold bull market and the reality of severe inflation in the near future.

Speaking of the near future, the relative strength of Gold in the face of a strong US dollar (or weak Euro) is one big hint that this recognition move is around the corner. We’ve noted this before and it is important to explain to new readers. Gold priced in foreign currencies has been leading Gold in US$ terms. It is true for the entire bull market and is quite evident in just the past few years.

In the chart below we use the foreign currency ETF (UDN) to show Gold against currencies ex the US Dollar. The lower half shows Gold in US Dollars. Note how Gold/UDN is breaking away to new highs. That chart is so strong that it barely had time for even a small correction. Since Gold/UDN has been leading Gold reliably, this is an indication of what is eventually coming in the US Dollar price of Gold.

Nowhere Close to a Bubble

As Gold pierces $1200 and makes a new high, surely we will hear a new round of calls that Gold is in a bubble or it is a crowded trade. Be sure to avoid this unsubstantiated nonsense, as it will only serve to waste your time and inevitably reduce your net worth. Let me provide you with just a few pieces of information, which refute this baseless claim.

First, did you know that as of a few months ago, Gold equities and ETF’s only accounted for 0.7% of all managed assets in the world³! Can you imagine how high precious metals could rise, if everyone in the world just put 2% of their assets in this sector? What if it was 5% or 10%?

Second, Jim Rogers recently spoke at a conference with, in his words, 300 big-time money managers. Apparently 76% of them had never owned Gold!

Third, superstar fund manager John Paulson of subprime fame has had great difficulty raising money for his Gold fund⁴. Even one of the top fund managers can’t even convince people to get aboard the Gold train.

Finally, consider public opinion on Gold, courtesy of sentimentrader.com. In the past, public opinion followed Gold higher. Yet, since the end of 2008, public opinion has stayed in a range, while Gold has climbed about $300/oz. The public hasn’t budged despite the historic breakout and holding of $1000/oz level.

Policy Makers are Shooting Blanks

Mainstream and amateur analysts will make the claims that the Fed will tighten or that the government will get serious about its troubling finances. There is almost nothing the authorities can do to stop the coming inflation and the roaring bull market in Gold and Silver.

First and most importantly, because of the overall debt level, which is massive compared to 1980, the US cannot afford to let interest rates rise. If interest rates rise, the market will only lose greater and greater confidence in the US as the interest burden will accelerate thereby hurting the economy’s ability to grow and hastening the threat of bankruptcy. However, if interest rates remain low, speculation in hard assets will become rampant as these markets continue to rise, inflation ticks up and purchasing power declines.

Second, the Fed would have difficulty trying to tighten the money supply. Remember that to do this, the Fed would need to sell assets into the market. Remember, the Fed’s balance sheet consists of garbage assets that the Fed overpaid for. Yes they could raise interest rates but then how would the banks survive? They wouldn’t be able to borrow at 0.25% and repair their balance sheets. If the Fed would raise rates above the level of inflation, it would certainly end up threatening the financial system.

Moreover, as we’ve noted again and again, severe inflation results from a loss of confidence in a government’s ability to meet its debts. This manifests in a falling bond market, rising interest rates and currency weakness. Debt crisis’ go hand in hand with currency crises. Hence, we see Gold breaking out against numerous currencies even though “the banks aren’t lending” and “velocity is falling.”

The last line of defense is the Treasury market. If and when interest rates breakout to the upside, the authorities will effectively lose both control and power. At that point, the inflation genie will be out of the bottle. The action in Gold is already hinting at that outcome.

Conclusion

Even though Gold has risen nine years in a row, it is nowhere near a bubble. Just take a look at this chart courtesy of Frank Holmes. It compares Gold’s current bull market with its bull market in the 1970s.

Note that Gold rose about six-fold the first eight years into the bull market (it began in 1970). Ultimately it rose 25-fold. The Nasdaq from 1982 to 1992 advanced about four fold. Ultimately it rose 29-fold. The Nikkei advanced less than three fold from 1970 to 1978. From 1970 to 1990 it gained 19-fold. Gold is nine years into its bull market and has advanced less than five fold. See a pattern here?

If you’d like professional assistance riding the coming acceleration and eventual mania in the Gold and Silver market, then visit our website and consider a free 14-day trial to our premium newsletter.

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com

Footnotes:

1) http://thedailygold.com/chartstechnicals/gold-cup-and-handles/?p=3117/

2) http://wallstcheatsheet.com/trading-markets/gold-in-euros-is-about-to-go-parabolic/?p=6862/

3) http://thedailygold.com/chartstechnicals/gold-is-0-7-of-global-managed-assets/?p=887/

4)http://online.wsj.com/article/SB10001424052748703615904575053793439062452.html

When it is time for the price to move higher, it will find a justification and news will magically appear. How many times have retail traders been frustrated to see a piece of news come out that supports their investment thesis and yet the price languishes or even moves the opposite direction of what the news would suggest. This is why Elliott Wave Theory and cycle theories are so attractive. And please note: Bob Prechter the Gold hatin’ deflationist is not the only Elliott Waver out there even if he is the guru du jour. Ask Alf Field or Tony Caldaro for secular Elliott Wave peak price targets on Gold and you might not hate Elliott Wave so much as a Gold investor.

The point is not that Elliott Wave or the various cycle theories work so well, the point is that we all seek to understand why markets move up and down to gain an “edge” that allows us to profit from these moves. The daily news doesn’t cut it, so people turn to cycles, alternative theories and technical analysis to try to understand what is coming next.

I continue to believe a strong upside move in Gold and Gold stocks is coming. This is based on historical patterns/fractals, fundamental analysis, sentiment data, money flows, long-term cycles, seasonal patterns and technical analysis. In other words, a hodge podge of different factors. These factors are all screaming “buy” to me when I look at the data.

Here are a few more data points for the short term. First, a chart I made in Excel based on the data that is available for free from Rydex. This is a chart of the total assets held by the Rydex Precious Metals Fund, a proxy for retail investor interest in the Gold sector (i.e. a type of sentiment data). This chart covers the last 3 years and when the blue linear plot is low, it means decreased total assets in the fund (i.e. decreased interest in the Gold sector):

Notice the last time investor interest dragged along the bottom (like it is doing now) was in the summer of 2009. Just to show how relevant this may be, let me first show you a current 6 month daily chart of the Gold Bugs’ Mining index ($HUI):

And here’s the action in the summer of 2009:

Or how about the time period I keep harping about – the 2001-2002 time frame? Here’s the correction in late 2001 to show the daily candlestick pattern before lift-off:

And you don’t have to guess what came next, the historical data is there for those interested. How about we check in on the $HUI 6 weeks later:

Along the lines of current Gold sentiment, Jordan Roy-Byrne over at The Daily Gold does some excellent work with the put to call ratios in the Gold patch. Here is a chart stolen from a piece he posted a few days ago showing the put to call ratio in the GLD Gold ETF:

Now, what news item could set this Gold market off and get it to run higher? Hmmmmmm. What if the U.S. was broke and overtly and covertly counterfeiting money to buy its own bonds and support the bond market (i.e. quantitative easing)? And then, let’s say that Congress decided to meet on a Sunday to pass a new health care entitlement that would cost hundreds of billions of dollars that the government doesn’t have. Ah, forget it. These scenarios are too far fetched…

March 10 (Bloomberg) — Investors are the most bullish on the dollar since the collapse of Lehman Brothers Holdings Inc. on speculation the U.S. economy will expand at a faster pace than in Europe and Japan, a survey of Bloomberg users showed.

The world’s reserve currency will rise over the next six months, according to respondents in the Bloomberg Professional Global Confidence Index. Sentiment toward the U.S. economy rose among the 1,612 participants in the survey, even as the outlook for global growth fell for a second consecutive month.

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