Ask any gold bull about Gold sentiment, and they’d tell you it’s bearish. Generally, that is correct.
Stocks are back at new highs again, crypto is threatening to break higher, and the US dollar has trended up for months. More importantly, Gold and gold stocks have been in a downtrend for 15 months.
However, Gold sentiment indicators are not exactly super bearish.
The Gold Optix from SentimenTrader.com combines a few indicators (like Market Vane and Daily Sentiment Index) and some of their proprietary data.
It was last at 59. It would need to drop quite a bit to mark a bearish extreme.
The most important sentiment indicator (with regard to commodity markets) is the Commitment of Traders report. It details how various factions (producers, buyers, consumers of that commodity, and speculators) are positioned.
A chart of Gold and the hedgers’ position (inverse of the net speculative position) is below.
Over the past six years, the net speculative position has ranged from zero to 400K contracts. It was 240K contracts as of a week ago. It’s not close to an extreme in either direction.
Big moves in markets occur after periods of very low volatility, and low volatility helps lead to disinterest and low levels of speculation.
The weekly Gold chart below includes several different volatility indicators.
Volatility in Gold has steadily declined, but both Gold Volatitity (GVZ) and ATR have more room to drop. That’s another way of saying Gold needs more time before it can be in a position to break out from the cup and handle pattern.
Sentiment and volatility are certainly in much better shape than they were 12 or 15 months ago, but they are not at levels that entail an upside explosion in Gold. However, they wouldn’t prevent a $30-$50 pop to the upside.
The takeaway from this analysis is that Gold needs more time, and sentiment in Gold at present is not bearish, as one might assume.
For now, I’m focused on finding quality juniors with 7 to 10 bagger potential over the next two to three years. The recent decline in the sector has priced out some of the risks in these stocks and enhanced the potential upside for new buyers.