The general operating plan has been toward a market that can drag on
into spring with a bullish bias. But in the short-term, over bought
markets can continue to correct. I have taken profits on some
overbought global positions and would like to watch for re-entry.
Interestingly though, the various ‘Gold Bugs’ data compiled by Sentimentrader.com
show an embattled sector that has scrunched even further to the left on
the graph above and is the lone item sitting in a good risk vs. reward
The implication is that the gold sector is preparing to disengage
itself from the broad market, just as it was disengaged in the 2000-2003
time frame to launch its bull market.
Another implication is that bigger picture precious metals corrective
activity could linger into spring (perhaps after a bounce or rally to
relieve the current sentiment condition?) if indeed the sector is in the
process of going contrary the broad market. Could we get some QE’s 3
& 4 inspired economic gains and more stories about Goldilocks, low
inflation and gold’s loss of luster as a disaster/inflation hedge? You
know the mainstream media; of course we could.
When you see Ben Bernanke heralded far and wide in the media as a
genius and the hero who brought us back from the brink without much
inflation, you’ll have the signal. This would be the opposite condition
to the one that was in play in the spring of 2011 when Pimco shorted
the Long Bond (expecting ever higher inflation) and Bernanke’s head was being called for by angry, pitchfork wielding mobs of austerity.
But the facts for the short-term are that the gold sector is in a
good risk vs. reward stance (both through technical proximity to
important support levels and what looks like washed out sentiment) as
more and more people come to believe it’s ‘bull over’.
Have patience dear Gold Bugs. The time may be coming now, off of
this sentiment crater or it may be coming for real in the spring. Just
play the game and manage risk. The real panic could come later when the
economy starts to grind down again and a Federal Reserve that jawboned
us last week about its QE exit plan is forced to promote QE’s 5, 6, 7…
Gold’s massive consolidation/correction is providing the inflators with
the cover they would need.
The loss of confidence in monetary autocrats at such time could be awesome to watch – and be positioned for.