Gold: Is It Time For Everyone To Just Give Up?

Includes: AGOL, GLD, IAU, PHYS
by: Avi Gilburt

"The Boogie Man is coming to town." Well, that is what I think about when I hear about the "Death Cross" in gold. In fact, it conjures up thoughts of the Death Star hovering overhead, preparing to fire its evil ray to destroy the planet Goldbugs.

While I can expound, at length, on the reliability of the "Death Cross" as an indicator, one of my fellow Seeking Alpha contributors has already done so, which spares me the need.

As many of you know, I view markets from a sentiment perspective. So, the question that many will ask is if sentiment has dropped to the point where we can say gold has bottomed. My answer is that I do not yet believe it has, other than for a corrective bounce.

While I do see the mainstream media, like the Wall Street Journal, publishing articles questioning gold's bull market entitled "A Fearful Time for Gold," I do not yet see true anecdotal evidence of ultimate capitulation sentiment which marks a bottom. Rather, when I simply peruse the last 20 articles on Seeking Alpha, and more than 70% of them are suggesting buying gold, I still do not see enough fear among gold bulls, at least from an anecdotal perspective.

Additionally, I am seeing further articles about how the rebound in China and India is bullish for gold, and how the economy is picking up and that is bullish for gold. But, as I have said so many times before, these arguments have never swayed my analysis in the past, which has constantly kept me on the correct side of the metals market, so I will not let it sway me in the future either.

An interesting chart I ran across is the TSX/TSXv Gold and Silver Producer Valuation, which tracks the market sentiment as compared to the price of gold. Note that on this dip, market sentiment for gold has actually moved inversely to the price of gold based upon the data tracked by this organization. So, do you think, based upon this data, that there is adequate bearishness in the market to mark a bottom? Well, consider that when sentiment was at its highest, it did mark the top, so it would seem we would likely need a lower reading to mark a bottom?

Additionally, the Kitco Weekly Gold Survey noted numbers of 52% bullishness for the week ending February 22, and only 14% bearishness.

Alternatively, has noted that bullish opinion of gold is under 42% for only the 2nd week in more than a decade. In fact, this indicator has now dropped below the 2008 crash low. Furthermore, the DSI, a survey of futures traders, came in at 3% bulls this past week. This is an all-time low, and is equivalent to the percentage of equity bulls at the March 2009 lows in terms of the DSI.

As of the latest COT report, which, again, is old data, so one cannot truly trade upon it, the commercial traders have become much less bearish, as they seem to have covered a rather large amount of their short positions.

For now, while we may still see one more dip in GLD, and then see a bounce as high as the 158-160 region, I still do not believe that we have seen the lows just yet. In fact, since I called the gold top in August of 2011, I have had a long-term target in the low 140 region (142/144), which still has not been hit, and it is still within the realm of possibility that it will be hit.

But, as you know, I am neither a gold bear, nor bull, as I simply read what the market is telling me and trade accordingly. At this time, I do not believe that the long-term bull market has ended, but lower levels are still likely. For now, after an adequate corrective bounce, my lower Fibonacci extension targets are 149, 146, and, the 142/144 region still looms large. But, if we see evidence of the next larger rally in metals beginning, I will attempt to update you with an article next weekend.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.