Gold Sentiment Reaching Key Level

This article is based on the latest premium edition of the Sentimentrader report (click here for a free trial). Market sentiment towards gold and silver are analyzed and put into perspective.

In March, we showed the sentiment report for gold and silver. In Gold and Silver Sentiment Improving Significantly, we showed how gold sentiment had been improving but was due for a break. The key was not to pull back to a score of 40 or 50. From the latest sentiment report, it  appears that sentiment towards both gold and silver has reached a normal pullback. However, it should not go lower from here.

gold_silver_sentiment_23_april_2014

From Sentimentrader:

On March 14, we took a look at gold sentiment, and noted that it had reached a two year high. When looking at such high optimism in spite of the metal still at least 10% below its previous 52 week high, it tended to suffer
going forward.
It did again this time, and sentiment has understandably moderated. From a high of near 80% in March, the current reading is now 44%.
During bull markets, sentiment tends to stay above 50% the majority of the time, and rarely gets below 40%.
During bear markets, it tends to stay below 50% and rarely gets above 60%. That’s what had happened for most of the past couple of years.
We’ve discussed previously that if gold did correct and worked off the optimistic sentiment, then bullishness should stay above the 40%-50% zone during subsequent corrections. It’s testing that now. There’s no hard and fast rule that says if sentiment dips below 40% that gold is automatically back in a bear market, it’s just a rule of thumb that tends to hold up over time and across contracts.
So if gold is indeed in a new bull market, then the current display of “bull market pessimism” should not get much worse, and we should see buying pressure start to take hold. If not, and gold not only breaks its early April lows but sentiment also gets worse, then the nascent bull market is in trouble.
gold_sentiment_chart_april_2014

gold sentiment

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