Anecdotal Sentiment

This is not going to be a complete update of gold sentiment data, we just want to look at recent press reports on gold and show how they correlate with trader positions and opinions.

Yesterday we happened to look at the market news headlines posted at the start page of Yahoo Financial. These were the top headlines:

 

Gold loses luster as retail investors look to silver

Here’s why gold could be headed to $800: Insana

 

A few quotes from the second article:

 

“…in the absence of a full-scale geopolitical crisis, economic collapse, or other “black swan” event, there is no good reason to hold gold — at least here in the U.S.”

 

Of course, it is in the nature of “black swan” events that they are unforeseeable, or at least unforeseen by the majority. Their current “absence” is a meaningless datum with respect to the future.

 

“….even a cursory look at inflation indicators, be they the level of global interest rates, inflation expectations as measured by TIPS (Treasury Inflation Protected Securities) and the direction of inflation, itself, do not suggest that gold, in dollar terms, can, or will, go meaningfully higher in the days ahead.”

 

A “cursory look at inflation indicators” would not have revealed any major increase in inflation expectations in any of the 10 years during which gold rallied from $250 to $1,900 either. Obviously, there are other drivers that are just as, if not more important, for the gold price.

 

“….the longer-term view remains bleak.”

 

Only if one subscribes to the notion that six years (and ongoing) of unbridled central bank activism will have no negative consequences. Even though that flies in the face of sound economic theory and all experience, it is admittedly the consensus right now. When the peak of the last central bank-induced bubble came into view, consensus opinion was very similar. Even once the crisis arrived, gold bears were fond of saying: “If gold cannot rise now, it never will” (i.e., the “longer term view was bleak”).

Next comes the pièce de résistance though:

 

“If you’re still looking for a safe-haven investment, a better option would be large-cap stocks with lots of cash and good management.”

 

We have heard a lot of things said about stocks in the course of the current bubble era, but this is the very first time we are coming across someone referring to them as a “safe haven”.

On Marketwatch we found this yesterday:

Oil, other commodities will be in the dumps for another decade (gold is one of those “other commodities” the article focuses on. The author informs us at the end of the report that he is throwing the towel and selling all his positions in these sectors. He incidentally also seems to think he knows more about the markets than Jim Rogers. Rogers is not always right about everything, but we have our doubts about that).

On November 6, the AP reported the following: Gleam is gone as gold prices sink to 4-year low. This article is especially interesting, as it informs us about the utter hopelessness of the situation (which is very similar to the NYT article from 1976 we recently quoted):

 

“Nothing is going gold’s way. Inflation remains tame, the dollar looks strong and Americans are increasingly confident. Even fears that the Federal Reserve would set off another financial crisis have faded as the central bank ends its effort to pump money into the economy. In short, all of the reasons for buying gold over recent years have disappeared, helping to drive prices for the metal to a four-year low.

[…]

Among investment strategists, there’s a growing belief that the worst for gold has yet to come. A surprise announcement by the Bank of Japan last Friday that it will expand its efforts to revive that country’s growth sent traders out of Japanese yen and into U.S. dollars. Gold plunged in response. In the U.S., the Fed’s next big step is an interest-rate increase, expected sometime next year. That should make savings accounts, money-market funds and other short-term investments more appealing. A higher benchmark rate would also sap inflation pressures and give the dollar another lift. Current trends, in other words, are all blowing against the yellow metal.

[…]

“Perhaps that’s the best thing you can say about gold,” says Edward Meir, a senior commodity consultant at INTL FCStone in New York. “Everybody is bearish on it. Honestly, though, I can’t see any bullish story at all.”

 

(emphasis added)

We distinctly remember that back in 2000, “everybody was bearish on it” too. And they sure couldn’t “see any bullish story at all” at the time, otherwise they would undoubtedly have told us about it. :)

 

A Few Data Points

It is interesting how the recent wave of bearish pronouncements in the press correlates with positioning and survey data. We want to pick out just two, which (similar to the AP article quoted above) were recently pointed out by Steve Hochberg of EWI.

 

Gold, small specsPositioning of small speculators in gold futures: from an 11 year high in the net long position at gold’s secondary peak in 2012 to a 15 year record net short position today – click to enlarge.

 

Even more interesting is a data point we haven’t discussed in some time, namely the Daily Sentiment Index. The chart below depicts a 5-day average of this index (which is a survey of futures traders conducted by tradefutures.com). It has just reached a record low of only 5% bulls. This compares to a record high of 96% bulls at the 2011 peak.

 

Gold-DSIA record low in the 5-day average of the daily sentiment index on gold – click to enlarge.

 

Interestingly, GOFO rates have recently dipped into negative territory several times as well. While this is not as significant as it would otherwise be while short term interest rates are pegged near zero by major central banks, it still signifies that there is growing tightness in the physical gold market.

 

Conclusion:

One must be careful with sentiment data during a clear trend, as they simply tend to follow prices to a large extent. They can serve as an additional input, but cannot really be used for precise timing. And yet, once people start saying that there simply is no reason at all to be bullish, and the bullish consensus according to positioning and sentiment data plumbs all time lows or multi-year lows, we have what is essentially a textbook contrarian situation on our hands.

This does not necessarily mean that there won’t be any further price declines (as noted previously, from a technical perspective further short term downside in gold can certainly not be ruled out), but it is undoubtedly a heads-up that the trend may be close to reversing. In this particular case one must also consider that central banks have blown yet another bubble of truly gargantuan proportions. As Mr. Singer of Elliott Management recently noted in his Q3 letter to investors:

 

“Nobody knows when reality will overtake the rhetoric, lies, phony statistics, wishful thinking, fake prices and tiresome poseurs pretending to be world leaders. The situation is universal, a consequence of terrible leaders and careless (or clueless) citizenry. Global problems are continuing to mount, along with the risk that the consequences of years of bad policies and inept leadership coalesce (as sometimes happens) in a short window of time.”

[…]

“Economics also provides its share of delusions, including the debt-fueled bubbles of both the 1920s stock market and the first dotcom boom. The real estate boom of the 2000s was another one, as excess demand was fueled by the combination of near-free money, the most marginal financial products ever invented, and the frenetic selling of houses to people who could not afford them and did not actually own them in any meaningful sense of the word.

“These examples are easy, because they were mass beliefs that were unreasonable in the extreme at the time they were held. Of course, at the time not everyone held the same deluded views, but the disbelievers were (and always are) discredited, demoralized and ignored while the delusions were alive. The problem is that while the delusions remain intact there is no proof available to convince the believers of their folly. Simply repeating that a mass belief is crazy does not make it so (nor convince anyone else that it is nuts). Furthermore, the amount of time necessary to reveal the truth is sometimes too long for nonbelievers to bear, so they just stop trying.

“There is a current set of delusions that is powerful and dangerous: that monetary debasement can be infinitely pursued without consequences; that the financial system is now solid and sound; that the low volatility and high prices of stocks, high-end real estate and bonds are real; that bonds are a safe haven; and that large financial institutions which get into trouble in the future can be unwound in a much safer way than they could be in 2008.

We have discussed each of these elements in the pages of this report and previous ones in an attempt to reveal the fallacy and unsustainability of such beliefs. But, as stated above, they will only enter the history books as mass delusions if they are unmasked in the future as unjustifiable and erroneous beliefs at the time they were held. We think that test will be met, perhaps soon.”

 

To the list of delusions Mr. Singer enumerates we can now add yet another one, provided by Ron Insana (nomen est omen?): “Big cap stocks are now considered a save haven too”.

It is of course very hard to stay the course when the markets do their best to convince everyone that things are perfectly fine and that, in the case of gold, no-one needs any insurance against the potential consequences of current policies anymore. As Mr. Singer points out: “While the delusions remain intact there is no proof available to convince the believers of their folly”.

However, one must not lose sight of the fact that they won’t stay intact. Once that juncture arrives, a few people will probably remember that they once read somewhere that the bullish consensus on gold had at one point declined to a mere 5%. :)

 

Charts by: Sentimentrader, EWI

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

6 Responses to “Gold Sentiment – A Contrarian’s Dream?”

  • ManAboutDallas:

    Insana is and has always been one of the CrimNakes’ favourite “go-to” SockPuppets when they want to spoon-feed the Schmoos some more swill. If they’re trotting him out now with this piece of risible nonsense the bottom is in, or near.

  • Please fix the spelling in the title–that’s the only flaw in this otherwise brilliant analysis.

  • This is a meticulously researched and extremely well written article. Thank you, father of darkness!

  • I wonder how much of this paper is going to hold up? If history holds course, most of it will be used to paper the walls of those that are stuck with it, except they never give you an actual bond or stock certificate any more. A stronger reason for the decline in gold, silver, copper and oil is the fact that someone needs money and these are liquid. Thus, they are holding their current winners and selling their losers, quite likely. People with a long term perspective rarely ever sell except to raise cash to retire margin calls. I am currently long silver. It doesn’t look too good right now, down 34 cents at present for the night.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 21st Century Shoe-Shine Boys
      Anecdotal Flags are Waved   "If a shoeshine boy can predict where this market is going to go, then it's no place for a man with a lot of money to lose." - Joseph Kennedy   It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if...
  • Christopher Columbus and the Falsification of History
      Crazed Decision The Los Angeles City Council’s recent, crazed decision* to replace Christopher Columbus Day with one celebrating “indigenous peoples” can be traced to the falsification of history and denigration of European man which began in earnest in the 1960s throughout the educational establishment (from grade school through the universities), book publishing, and the print and electronic media.   Christopher Columbus at the Court of the Catholic Monarchs (a...
  • How to Make the Financial System Radically Safer
      Preventing the Last Crisis Clear thinking and discerning rigor when it comes to the twisted state of present economic policy matters brings with it many physical ailments.  A permanent state of disbelief, for instance, manifests in dry eyes and droopy shoulders.  So, too, a curious skepticism produces etched forehead lines and nighttime bruxism.   The terrible scourge of bruxism and its potentially terrifying consequences. Curious skepticism can lead to the darnedest...
  • The One Promise Trump Can Keep
      Broken Promises POITOU, FRANCE – “We live in a slow-growth world,” summarized a canny friend, “but with high-growth debt and high-growth asset prices.” Today, we turn to a report on Zero Hedge for further precision. But we’ll get to that in a minute. First, let’s begin with less precision. The promise of the Trump administration was, in a nutshell, that it would look ahead and improve the future before we got there. How?   President Trump: so far the future...
  • The Forking Paradise - Precious Metals Supply and Demand Report
      Forking Incentives A month ago, we wrote about the bitcoin fork. We described the fork:   Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!   BCH, son...
  • The Government Debt Paradox: Pick Your Poison
      Lasting Debt “Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”   Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo...
  • S&P 500 Index: A Single Day Beats the Entire Week!
      Recurring Phenomena Many market participants believe simple phenomena in the stock market are purely random events and cannot recur consistently. Indeed, there is probably no stock market “rule” that will remain valid forever. However, there continue to be certain statistical phenomena in the stock market – even quite simple ones - that have shown a tendency to persist for very long time periods.   This chart illustrates a “rule that changed” - for eight decades...
  • Long Term Statistics on AAPL
      Introductory Remarks by PT Below we present a recent article by the Mole discussing a number of technical statistics on the behavior of AAPL over time. Since the company has the largest market cap in the US stock market (~ USD 850 billion – a valuation that exceeds that of entire industries), it is the biggest component of capitalization-weighted big cap indexes and the ETFs based on them. It is also a component of the price-weighted DJIA. It is fair to say that the performance of...
  • The United States of Hubris
      Improving the World, One Death at a Time If anyone should have any questions about whether the United States of America is not the most aggressive, warlike, and terrorist nation on the face of the earth, its latest proposed action against the supposed rogue state of North Korea should allay any such doubts.   Throughout history, the problem with empires has always been the same: no matter how stable and invincible they appeared, eventually they ran into “imperial...
  • Tragedy of the Speculations
      The Instability Problem Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future. In fact, it is not.   A tragedy... get the hankies out! :) [PT]   Why not? To answer, let us start with a look at the incentives offered by bitcoin. We saw a comment this week, which is apropos:   "Crypto is so...
  • Despite 24/7 Trading: Bitcoin Investors are Taking off for the Weekend on Friday Already
      Crypto-Statistics In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.   Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to...
  • Precious Metals Supply and Demand
      Fundamental Developments There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30. Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.   Gold and silver prices in USD terms (as of last week Friday) - click to enlarge.   Next, this is a...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com