Are Gold and Silver Topping Out?
Where have all the precious metal bears gone? They are now as scarce as the gold bugs (NYSEARCA:NUGT) were back at the December lows.
After a 9% year to date rise in silver (NYSEARCA:SLV) and a similar 10% gold gain, the precious metals critics have gone back into hiding while the bulls are coming out of the woodworks again.
But, it is times like these that offer the best profit opportunities for savvy investors.
The Metals Bubble Bursting
The ebb and flow of precious metals bulls and bears is certainly nothing new.
For instance, back in March 2013, before gold’s 20% crash, we showed how Gold Mania actually peaked in 2011 and has been steadily declining, along with prices, ever since.
As part of that analysis provided to subscribers of our Profit Strategy Newsletter, we took a look at the gold market’s sentiment and concluded it was in a bubble that was popping as we summarized:
“The peak of pop culture’s obsession with gold (NYSEARCA:GDX) occurred right around the time gold prices peaked at $1900, in late ‘11. We don’t see it as coincidence that Pawn Stars was the 2nd highest rated television show in ’11 just as another popular gold focused television show, Gold Rush: Alaska, was in its inaugural season, right when gold prices topped out.”
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The Gold Rush:Alaska show is still being produced, but ratings are now down to under 4.0 million viewers from that first top season of 2011-12 when 4.6 million viewers on average tuned in and it was the #1 show on Friday night primetime.
Pawn Stars remains near the top of the ratings charts, a potential sign some euphoria still exists for precious metals and other collectibles.
These are some mainstream examples of how investors can gauge sentiment, but there are also more objective ways that we use and are signaling now, discussed below.
My video about gold sentiment and a 66% gain from a trade using it explains in more detail how we use sentiment to help find price extremes. Due to overly bearish sentiment along with a pending technical reversal, we went long the precious metals (NYSEARCA:AGQ) and mining stocks (NYSEARCA:GDX) in December, capturing some hefty gains.
A similar, but opposite setup is occurring now as the smart money has had a mass exodus from precious metals the last few weeks, taking advantage of the short-term rally.
In other words, the smart money has been selling the latest precious metals bounce, getting very hedged again.
The chart below is similar to one we provided our subscribers back in December (and shown in the video link above) that helped capture that 66% gain in gold options when bullish sentiment reached historically low levels.
The blue arrows on the chart show speculators have again jumped on the bullish metals bandwagon, taking sentiment to levels that were associated with other previous major metals price tops.
In addition to the sentiment readings, the technical setup is also showing silver (NYSEARCA:ZSL) is overbought (red arrows on the chart). This too has aligned with the prior major metals tops.
Combining sentiment with technical analysis has helped us identify multiple opportunities in the metals (NYSEARCA:GDXJ). An explicit example is our GDX tandem options trade that resulted in a 188% timestamped gain from our 6/5 buy alert to our subscribers. And once again, we are preparing for our next high probability trade setup.
The next precious metals opportunity will likely be on the short side, as sentiment and technicals again align for a great profit opportunity.
The ETF Profit Strategy Newsletter utilizes sentiment and technical trends to keep our subscribers on the correct side of the markets. Updates to the silver setup including specific trading suggestions can be found in our twice weekly published Technical Forecast. The precious metals markets are also a staple in our monthly Newsletter and Weekly ETF Picks.
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