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Is It Time To Buy the Dip in Gold?

Stock MarketsOct 12, 2021 03:30PM ET
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© Reuters. Is It Time To Buy the Dip in Gold?

Gold (GLD (NYSE:GLD)) has underperformed all year and is now down more than 20% from its all-time highs. However, fundamentals remain supportive as the economy slows while inflation remains a threat. Taylor Dart breaks down why you should consider buying the dip.Investors in the precious metals sector have endured a long stretch of underperformance, with the gold (GLD) price sliding nearly 20% from its Q3 2020 highs while most other asset classes have risen. Those investors holding producers have had an even tougher time, with the Gold Miners Index (GDX (NYSE:GDX)) down 15% year-to-date. However, with many generalist investors throwing in the towel and even gold bugs beginning to rethink their loyalty to the trade, the end of the correction is likely near. This sense of despair is corroborated by bullish sentiment readings, which have dropped to their lowest readings since 2018. Let’s take a closer look below:

(Source: TC2000.com)

As evidenced by the above chart, gold is an emotional trade, with sentiment swinging from one extreme to another more than 14 times over the past decade. However, while we’ve seen multiple readings of extreme pessimism since 2012, all of these readings except one (Q3 2018) occurred in the 2012-2016 secular bear market. These readings denote instances when we have more than four market participants bearish for every one investor that’s bullish, with readings this extreme making sense in multi-year bear markets.

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Is It Time To Buy the Dip in Gold?
 

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Comments (2)
William Gatling
William Gatling Oct 14, 2021 9:54AM ET
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Nice timing on your article.
Pierre Re
Pierre Re Oct 12, 2021 5:10PM ET
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interesting.
 
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