Commentaries, Sentiment

Great Sentiment Analysis from Steve Saville…


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.

Despite the fact that gold is the only high-profile market to make a new all-time high over the past few months, objective indicators of sentiment suggest that the general level of gold-related optimism is relatively low. For example, the results of the latest Market Vane survey show that only about 60% of traders are bullish on gold. This bullish percentage is in the bottom quartile of the three-year range. For another example, the premiums to net asset value for Central Gold Trust (GTU) and Central Fund of Canada (CEF) dropped to 2.9% and 4.8%, respectively, on Tuesday 27th July, which is near their lows of the past two years.

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.

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