Watch Gold Sentiment For A Confirmation Of Its New Bull Market

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 the last gold sentiment update some three weeks ago (read Gold and Silver Sentiment Improving Significantly), we noted that gold just crossed its 200 day moving average for the first time in a year. That happened on an improving sentiment score.

According to Sentimentrader, who analyzes sentiment in almost all markets, it was important to watch gold sentiment cross 70%. “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.”

Where do we stand today? The latest figures, released this weekend, show that gold’s sentiment is 75% and silver 50%. That’s almost identical as 3 weeks ago, although the price stands significantly higher. It is mainly platinum and palladium that went higher significantly.

metals_sentiment_14_March_2014

Zooming in on gold, the sentiment chart shows that gold is approaching “excessive optimism” territory, with a current reading of 75%. That’s on a par with the highest readings of the past few years, close to where it stood several weeks in the fall of 2012. 

gold_sentiment_14_March_2014

From Sentimentrader:

Over the past 20 years, there have only been four other times that sentiment climbed to 75% while gold was still at least 10% below its previous 52-week high. Those dates were 3/4/97, 10/6/97, 2/2/98 and 4/3/98, all fairly clustered together during the metal’s last bear market.

Each of those times, the rally was close to petering out, leading to negative returns over the next month (at least) each time, averaging -4.6%. Gold wasn’t able to rally more than 2.3% before rolling over any of the four times, and three of the four it rolled over immediately.

As always, when a market shrugs off its typical reaction during a market cycle, then the probability increases that that market cycle has changed…meaning that if gold can hold steady in the coming weeks in spite of high sentiment levels, then the case for a new bull market will be bolstered even further.

Indeed, it is key to watch how gold sentiment will behave with the changes in the gold price in the coming weeks. If the price goes higher and gold sentiment remains close to its current readings, it would indicate to internal strength. If the sentiment readings go significantly higher, then a pullback in price is very likely.

Readers can monitor market sentiment by subscribing to the Sentimentrader report (click here for a free trial).

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing