Gold and Silver Sentiment Improving Significantly

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.

Early February, we showed the sentiment report for gold and silver. In Silver Price To Break Out Or Break Down In ComingDays, readers can see how gold sentiment had a score of 40 (on a scale to 100) while silver stood at 20. From the latest sentiment report, released over the weekend, it  appears that sentiment towards both gold and silver has improved significantly.

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Gold sentiment

Sentimentrader recently discussed the fact that gold finally crossed above its 200-day moving average for the first time in a year. The other times that has happened, gold tended to do well going forward.

Another positive sign is that sentiment has climbed above 50% and the metal has not pulled back significantly. During bear markets, sentiment tends to stay below 50% during rallies.

At 70%, sentiment is elevated but not especially troubling yet. Above-average and rising sentiment is good, as long as it doesn’t get excessive, which would occur on a move closer to 80%. Even in a bull market, that would suggest that at least some nearer-term caution would be warranted.

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Silver sentiment

We aren’t yet seeing excessive optimism in silver, but at this pace it’s not going to take long.

Over the past two weeks, large speculators in silver futures added to their positions at one of the fastest rates in 8 years. The last time they did so was right before the peak in mid-2012. We’re seeing a similar phenomenon in Public Opinion, which went from barely 20% in late December to nearly 60% this week. Such a fast turnabout in sentiment isn’t necessarily a bad sign – a commodity needs improving sentiment in order to rally. The key will be watching how silver reacts to this quick shift. If it’s still mired in a multi-year bear market, then it shouldn’t be able to rally much more before rolling over.

If it continues to rally (which we think it will), then we’ll likely see sentiment move to a new regime of generally higher levels of bullishness.

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