As gold heads for its worst annual loss in 32 years, universal
hatred for the yellow metal is building. Is it signaling a
potential reversal in faltering bullion prices?
Our chart below shows the 2013 relative performance between the
SPDR Gold Shares (NYSEARCA:GLD) and the SPDR S&P 500 ETF
(NYSEARCA:SPY) is almost 60%. That canyon sized performance
difference between gold and U.S. stocks is so large that bearish
sentiment toward the yellow metal has now reached extreme
Look no further than expectations for lower gold prices in 2014
from major banks and investment firms. The outlook is almost
Goldman Sachs predicts gold bullion to fall to $1,050 per ounce
by the end of 2014. CIBC is forecasting $1,000 gold next year and
Citi Research says that investors should avoid gold and stick with
palladium (NYSEARCA:PALL) instead.
More significant than gold forecasts, is the sentiment extremes
between the "smart money" (commercial traders) vs. the "dumb money"
(speculators) in the gold market. The "dumb money" is either
neutral or bearish, whereas the "smart money" hasn't been this
bullish on gold in nine years!
Another chart in our just published January 2014 ETF Profit
Strategy Newsletter illustrates this point further. What we see,
going back to 2005, is that at every major turning point, the
"smart money" has been right about the direction of gold, whereas
the "dumb money" has been wrong. Will this time be different?
Sentiment extremes such as these can point to sharp reversals ahead
and even full blown trend changes. In this
case, overly bearish sentiment (as we have now in the gold
market) can signal an upcoming bounce, a potential trend
change, and an opportunity to go long. The opposite is true
Our best trade in 2013 was a result of capitalizing on overly
bullish sentiment in the gold market - or the opposite extreme - of
what's occurring right now.
from Feb.14, 2013 we wrote:
"The Market Vectors Gold Miners (NYSEARCA:GDX) has lagged
both the broader U.S. stock market along with the SPDR Gold
) by a very significant margin. At present, GDX trades around
$41.50 and is well below both its 50 and 200 day moving average.
Buy the Direxion Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST)
at these levels. A double digit slide for gold would likely
translate into a 20%+ loss in mining stocks. This scenario offers
some big upside potential for bears."
Since our 2/14 trade alert, GDX has crumbled around 49% and DUST
has climbed 112%. In that same report, we told our subscribers to
buy JUN 40 GDX put options at $190. In early June, we sold those
same GDX put options for a 525% gain at $1,200 per contract.
Ultimately, sentiment extremes, used in conjunction with other
indicators, helps to identify major turning points and
often, a significant profit opportunity for investors who are
Profit Strategy Newsletter
uses technical, fundamental, and sentiment analysis along with
market history and common sense to keep investors on the right side
of the market. Since the beginning of the year, 74% of our weekly
ETF picks have been winners.
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