According to a Bloomberg survey, the median estimate of eight of the ten most accurate forecasters (of the past two years) is $1,950/oz by the end of the first quarter 2012.

Source

We use a combination of sentiment analysis and technical analysis in market timing which often gets a bad name courtesy of mainstream retail nonsense. The dumb money tries to time the market while the smart money utilizes market timing to weigh risk and reward. It’s rather simple when you acquire the skills and helps you understand markets. Recently we had been quite bullish on precious metals but thought we were in a small corrective period. We were wrong as the sector has suffered from Europe’s version of 2008. The good news is, our market timing work leads us to believe that the worst is soon to be over and this is an opportunity on the long side for those who have a twelve month time horizon.

Below is the Commitment of Traders (COT) for Gold. The data is as of last Tuesday. The commercial short position has dropped nearly 50% in the last few months. The commercials (the smart money, the end users and producers) are positioned more bullish than any other time in the past two years. This is another way of saying the speculative long position is at a two year low. Meanwhile, open interest is 28% off its high and close to a two year low.

In Silver, we see that the commercials are are net short only 24K contracts. This is the lowest since December 2008. Open interest is 35% off its high and at its lowest point since the end of summer 2009.

In addition, the latest public opinion report from sentimentrader.com (as of last Tuesday) shows 58% bulls on Gold and 31% bulls on Silver. Any further drop in Gold would mark a three-year low while the public is its most bearish on Silver since September 2008.

Even one month ago the speculative money was not so involved in precious metals. The recent carnage in equities and in Europe precipitated the selloff in precious metals which has caused all the remaining speculators to exit the market. Sure, we could see the metals move a bit lower and have sentiment turn even more bearish. It’s not impossible. However, Gold and Silver are rallying today and will soon begin a bottoming process. Sentiment tells us a bottom is very likely. Now we need the price action to confirm. If you are interested in professional guidance in profiting from this bull market while managing your risk we invite you to consider our premium service.

Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com

The fading allure of bullion and gold stocks is tied to rising prospects for the global economy, said Howard Atkinson, the president of BetaPro Management Inc, which puts out a quarterly survey on adviser sentiment.

The latest results showed a big drop in expectations for gold following two years of consistently strong sentiment. For the first quarter, 33 percent of advisers said they were bullion bulls, down from 64 percent in the fourth quarter.

Bullishness toward the S&P/TSX Global Gold Index fell to 33 percent from 64 percent. The index rose more than 25 percent last year.

Fading allure?

Gold is what…3% off its high? Quite the fading allure.

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Back to gold bullion, BCA Research argues that it is hard to make the case that gold is currently “a crowded trade”. Many institutional and retail investors agree with the gold bull case but have been slow to act, argues BCA Research, “even as their faith in conventional stocks and bonds has ebbed. Indeed, based on investor meetings and anecdotal evidence, we estimate that the average portfolio allocation to gold is around 1%.

“This suggests that there is plenty of pent-up demand which could still flow into gold and related shares. True, the gold bull market will proceed in installments, not a straight line. It would not be a surprise to see gold suffer occasional selloffs of perhaps a few hundred dollars at a time during 2011.

“We would broadly view these selloffs as opportunities to boost core holdings. The bottom line is that gold is a potential mania candidate and expect good returns in this metal in 2011″.

I couldn’t agree more with BCA, although the mania will be years into the future and not in 2011 or 2012. Professionals continue to be under-invested in Gold.

Most interesting in particular is the divergence between the COT data for Gold and Silver and the rest of the commodities. The speculators (non-commercials) according to the COT data are positioned more bullishly in Copper, Oil, Corn and Wheat while they’ve cut back long positions in Gold and Silver.

First we see the chart of Gold and the commercial traders’ net short position at the bottom. The commercials’ short position is down 32% in the last several months. In other words, the speculative long position in Gold is down 32% and is at its lowest point since the middle of 2009.

The COT picture is equally as encouraging for Silver bulls. Net non-commercial long positions are down about 30% in the last several months. The last time commercial traders held a similar position, Silver rallied from $17 to $20, $18 to $24 and from $26 to $31.

Meanwhile, lets take a look at Copper. Back in mid 2010 when Copper fell below $3.00/lb, the commercials’ net position was neutral. Now their net short position is the highest in at least several years.

The same can be said for Crude Oil.

And Corn.

Meanwhile, the commercials are somewhat net-short of Wheat. Yet, about 95% of the time during the last three years, commercials were net-long Wheat.

It is not shown in the charts but open interest in these markets remains near recent highs while open interest in Gold and Silver are 10% and 14% off recent highs. This is another sign that speculation in Gold and Silver has diminished but not in the other commodities.

We’d also note that per sentimentrader.com, public opinion has declined from 73% bulls to 62% in Gold and from 86% to 72% in Silver.

In the larger picture, Gold and Silver are in an enviable position. While they’ve been in corrective mode, they’ve only declined marginally while shedding the speculative “hot” money that in fact, continues to reside in other markets. Moreover, as the economic recovery stagnates and more monetization is forced on the US and other governments, Gold and Silver will reassert their leadership. Money will come out of bonds in favor of the premier hard assets, Gold and Silver.

If this analysis appeals to you, then join us at our professional service for a free 14-day trial as we navigate the bumpy but rewarding bull market in the high potential juniors.
Good Luck!

Jordan Roy-Byrne, CMT
Jordan@TheDailyGold.com
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The premium in GTU has dipped into the red for the first time since October 2010 and prior to that, late 2008. This is positive as it shows optimism is now quite low, if there is any.

Mark Hulbert of MarketWatch gives an update on his Gold sentiment indicator:

Consider the average recommended gold market exposure among a subset of short-term gold market timers tracked by the Hulbert Financial Digest (as reflected by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at 33.6%, which means that the average short-term gold timer is allocating two-thirds of his or her gold-oriented portfolios to cash. Six weeks ago, in contrast, the HGNSI stood at 40.3%.

A similar pattern to what we’ve experienced over the last six weeks is the declining bullishness witnessed since mid-September, some four months ago. At the time, with gold bullion trading below $1,300 — more than $100 below its current price — the HGNSI stood at 59.2%. That’s nearly double where it stands today, despite bullion today being much higher.

In other words, in the face of a four-month net increase in gold’s price of over $100 per ounce, the average gold timer is today only slightly more than half as bullish.

Babak (who is an excellent analyst of market sentiment) opines at TradersNarrative:

The small correction (or more accurately, sideways consolidation) has actually provided wrung out a surprising amount of bullish sentiment. If we check in with the Rydex traders, we see that they have dramatically reduced their dedication to the precious metals sector:

The chart above compares the total assets of the sector fund (in millions) with the SPDR Gold ETF (GLD). The most recent correction is just the start of what is usually a much more protracted decline in assets. So far, we haven’t seen a real abandonment of the sector from Rydex traders.

On the plus side, the SPDR Gold ETF (GLD) is down about 4% from its recent high. In contrast, the total assets of the Rydex Precious Metals fund is down about 15% from its recent high. So we are seeing an asymmetrical reaction. But from a contrarian viewpoint that’s just a good start.

As well, the Bloomberg sentiment poll has also reacted to the fall in gold price. The bull ratio adjusted this week to 42% from more than double that the previous week. The last time it was lower was on December 17th 2010.

Stealth Correction
The composite sentiment indicator from SentimenTrader is relatively low at 69.63%. Frankly, I’m surprised that it isn’t higher since gold is trading very close to highs – or at least it was. So here the gold bugs have some vindication that bullish sentiment isn’t as high as it merits, considering the strength of gold.

Finally, the COT data looks very healthy if you are a gold bull. During the sideways consolidation, commercial short positions (or speculative long positions) have decreased by 16% in the last three months while open interest has fallen 9% in the last two months.

Although Gold has essentially failed to make a sustained new high in the last several months, sentiment indicators show a clear improvement from a contrary point of view. The speculators in the futures market have reduced their long positions, retail money has sold some and market timers are less bullish and only slightly bullish despite the fact that Gold is less than 5% off its high.

Gold could be setting up for a big leg higher. What are the targets? How should you play it? Consider a free 14-day trial to our premium service. Our junior portfolio was up 86% in 2010 and we have new prospects who are potentially the big winners of 2011! Good Luck!

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com

TheDailyGold.com

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.