Swings in Sentiment/Gold
January 1, 2017
In 2016, the HUI gold index was one of the best performing assets – up 62%. Which is odd considering the amount of bearishness surrounding miners currently, although a bit less since the recent lows. Of course it almost tripled from the January lows to the August highs. And many individual miners did far better. But it has fallen 44% since the August highs. Which once again gets back to not being afraid of “missing a move”, so taking profits, even partial profits, at times. Markets have big rallies and then reactions, sometimes huge reactions. A combination of taking some profits, but buying really well can work great in markets, because that approach is based on risk. And once sold, do not immediately look to buy again, as the great buying conditions are no longer there. Patience will allow the great buying setup and opportunity to unfold again. There are times to buy and times to sell, they don’t overlap – they have distinct conditions. We just have to deal with PMs being a very emotional market. It is what it is, and it’s why sentiment indicators are such a powerful tool in PMs relative to most other asset classes. Sentiment equals emotion/psychology, and patience to only wait for the extremes in sentiment equals potential entry/exit points or turning points. The PM sector is tiny when compared to the general stock/bond markets. And PMs, especially the miners and also silver, are also much more volatile than most other markets. Which is why I view the miners as more of a trading market, short term with leverage, or even longer term trading (with no leverage for me). Physical metals, when bought well, are easier for me to sit with for much longer periods. The “best” approach is the one which is the most comfortable for us. The problem often is people have a plan, but then a declining market causes them to change their original plan.
Right now in PMs the sentiment background is much different than it was in July. Six months ago the extremely bullish speculation in gold futures had reversed their extreme bearishness from the December 2015 lows. And the sentiment now is also much different than it was right before the election. In the pre-election period we were inundated with scare tactics trying to get us to buy gold, as bullish sentiment was soaring, and as the bullish rhetoric only increased right into election day. Yet in this November 1st post, I believed it was a lousy time to buy and my plan was to sell some gold and also short it above $1305, and a rally “caused” by the election would be bearish. But we heard from numerous people right before the election who saw nothing but higher prices for gold like here, and here – and from someone who makes alot of money (for himself) writing books.
Currently the bearish gold stories are out, as are calls for much lower gold. The gold futures speculators have done alot of unwinding of bullish positions, and are back at February levels. The unwinding can certainly continue, but there are going to be rallies and reactions to set up a basing process/accumulation before a more sustained rally takes hold later next year. The first quarter will likely see another push lower. The high in gold was on 9/6/2011 and the HUI a few days later. This has been going on for 5 1/3 years. The impulse move out of last December 2015/January 2016 was different than all of the other rallies from the new lows. That in itself has meaning, as the character of the market had changed. This thing on a big picture basis is winding down, but there are still problems out there to put a damper on things, like the US$ or the India uncertainty. And there will be some swings in sentiment to set things up better this quarter.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day. Scott returned to markets over fifteen years ago where he continues as an independent trader.