-- Posted Monday, 30 October 2006 | Digg This Article
by Dr. Steve Sjuggerud
I love it.
Traders have given up on precious metals… they’ve thrown in the towel.
This is actually what I want to see. To me, this gives us a great opportunity to hop in and buy precious metals now. This really could be the beginning of the second major leg up in what we see as a bull market in commodities that could last another ten years.
How can I make the claim that everyone has given up on precious metals? Just ask the “Commitments of Traders” data.
It appears we’re at a bearish extreme in sentiment for precious metals. Naturally, I contacted my friend Jason Goepfert of www.sentimentrader.com for his insights, as he’s thought about sentiment extremes as much as anyone I know.
Jason agreed with me… “Large speculators in silver are holding only 29% of all long positions… That is their smallest position since 1996.”
“Large speculators” in the commodity markets are the guys who run hedge funds and commodity trading pools… and most of the strategies they follow lead them to simply pile onto a trend at the same time. In silver’s case, the large speculators are down to their lowest levels of bullishness in the past ten years.
The trend is similar in gold. The latest figure on gold sentiment is “the second-lowest in the past three years, second to late May 2004,” according to Jason. He also agreed that we could see a big move up here…
“If precious metals break to the upside, we should get a nice run as large speculators rush in.”
Not to put too fine a point on it… But if gold breaks above $600 and holds, and silver holds above $12, the next leg up in the precious metals bull market should be on.
It’s not just precious metals… Take copper for example. Jason told me “large speculators in copper futures currently hold only 18% of all open long positions. That is up from 11% in June, but still well below their historical average.”
Why does Jason track the “large speculators?”
“The reason I’m focusing on large specs is because they are the quintessential trend-followers in metals. As goes price, so go the large speculators.
“They tend to pile in when they see trends begin to develop, and since they’re now starting out at a relatively minor percentage of total long open interest, if the metals can start to reverse here, we should see the large specs come in and start to buy again – increasing the potential for a leg up.”
In short, if the metals start to move up, these speculators won’t just stand around and wait… they’ll pile in and push gold and silver prices much higher.
I’ll be watching the price of precious metals over the next few weeks… as this could be a great chance to step in and buy get ahead of the crowd. Consider doing the same.
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