Short Term Warning for Gold Bugs

Sentiment models are flashing caution for gold again. The Commitment of Traders data chart below shows the large speculator (hedge fund) net position in gold bullion, readings are moving into the crowded long zone despite the recent weakness in the gold price. This is a contrarian bearish reading.

Similar sentiment concerns were also raised by Mark Hulbert, who stated that gold timers were becoming more bullish on the yellow metal despite its decline. Other sentiment surveys also show the same rising bullishness.

Medium and longer term, I generally concur with the views of the Aden sisters who wrote in late April (italics are mine):

Gold's C rise is finally over. After rising 55% in nine months, in one of the best intermediate rises in the current seven year bull market, it signaled several things. Most important is the strength behind the bull market because new highs continued to be reached. Gold's next step is likely to be a good downward correction that could take several months to develop.

They concluded with:

Some worry that the March peak was THE peak for gold. This is very unlikely considering the world situation and the economic imbalances today.

 

Comments

[Emerald:]

Crowded trade - yes! A drop in oil prices will spur a bear market rally, pushing down the price of gold. By the fall, the rally will reverse and gold will be back at +$900 an ounce. The consu,mer is tapped out and a drop of $0.50 a gallon will not spell relief. The Fed will not raise interest rates for fear of destabilizing the shadow banking's derivatives market. Asset deflation in housing coupled with price inflation in necessary goods will return the market to its general uneasiness and put a floor of $850 under gold.

2008 Jun 02 09:47 AM

[bowman711:]

I would say that a far bigger problem for gold is that the eight biggest bullion banks open interest is short by over 80%. The '8 or less' traders in gold currently hold 81.6% of the entire short position on the Comex. [For silver, it's 78.2% short.] It is hard for gold to go up when it is negatively controled by so few traders. My guess is that they are working with the government to make the dollar seem better than it is. Since they don't control oil, it has gone up to more accurately reflect the flood of dollars through the Fed over the past six months.

2008 Jun 02 12:12 PM

[Hugh:]

There are just too many variables involved for anyone one the planet to really know what is going to happen in the short run to the gold market, or any commodity for that matter. Charts are only history, and are little better than tea leaves.

Gold is easily moved in either direction by factors outside the gold market itself.

A "contrarian bearish reading" is nothing more than a "mainstream bullish reading."

All of the charts ever created, and all of the talk ever uttered, will never replace the fundamental fact that paper money has no backing.

2008 Jun 02 02:54 PM

[maher:]

Destination $3000 Gold.
Iran will help us get there. :)

2008 Jun 12 06:10 PM