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Gold Sentiment Not Bearish Enough


 -- Published: Friday, 20 March 2015 | Print  | Disqus 

By Jordan Roy-Byrne, CMT

Precious metals are closing the week out with a good rally. The Federal Reserve nonsense proved to be a catalyst as it can be in either direction. Regardless of the Fed, the precious metals sector was oversold and due for a bounce. We wrote about that last week. Maybe this could be the bear market bottom. Maybe not. It concerns us that Gold is rebounding from an area of insignificant long term support amid sentiment that is not at a bearish extreme. Extreme bearish sentiment coupled with very strong support raises the probability of a major rebound or bear market bottom. I donít see that for Gold, yet.

Below is a weekly line chart of Gold with its net COT position at the bottom. Gold will close the week around $1180/oz and avoid a break below the channel. However, Goldís COT is far from a bearish extreme. Goldís three best rallies in the past two years began with its net speculative position at or below 10% (of open interest). As of last Tuesday the net position was 22%. Gold may need this to be below 10% before it can bottom.

mar19.2015edgold

Gold & Gold COT

In the next chart we plot the premium/discount to net asset value (NAV) for a pair of closed end funds. CEF (which is shown at the top) is a closed end fund that owns Gold and Silver. GTU is a closed end fund which owns Gold. Both funds are currently trading at +7% discounts to NAV. While a 7% discount is big it is well below the largest discounts seen in late 2000 (~18%) and late 2014 (13%). GTUís largest discount was 12% in late 2014.

mar19.2015edcefgtu

CEF & GTU premium/discount

Interestingly, the mining companies arenít expecting or may not be prepared for $1000-$1100/oz Gold. The graph below is from consulting firm PwC. Look at how few companies are valuing their reserves and resources at sub $1200 Gold!

PWCreservesgoldprice

PwC survey

With the sector in a downtrend, bulls need to see some combination of extreme bearish sentiment, extreme oversold conditions and strong technical support. Metals and miners are rallying so sentiment figures to improve a bit before it can reverse course. In the big picture sentiment is quite bearish but the indicators argue itís not quite at an extreme. The COT is one example and the premium/discount in closed end funds is another. Technically, Gold does not have strong support until well below $1100/oz. Weíd like to see Gold falling below $1100/oz, getting more oversold and nearing strong support with sentiment reaching bear market extremes. Those are the conditions for great buying opportunities that can lead to a bear market bottom. Consider learning more about our premium service including our current favorite junior miners which we expect to outperform in the second half of 2015.

Jordan Roy-Byrne, CMT

Jordan@TheDailyGold.com


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 -- Published: Friday, 20 March 2015 | E-Mail  | Print  | Source: GoldSeek.com

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