Surprise! Another Sentiment Extreme Hits the Gold and Silver Market

Back in December very few investors were bullish the metals. After all, silver (NYSEARCA:SLV) had fallen over 30% and gold (NYSEARCA:GLD) over 25% for the year.

But, by March the metals (NYSEARCA:GDX) had rebounded 10%, and just when everyone got aboard that rally and turned bullish, the metals fell back to test their three year lows.

A similar bounce in the metals just occurred.

Is this the one to finally get all aboard bullish on?

What Drives Precious Metals?

Most investors have heard of the saying, “Be fearful when others are greedy and greedy when others are fearful” and the metals market recently has been a perfect example of this in action.

Back in December, the precious metals’ declines caused many long time bulls to throw in the towel.  Check out some of these headlines from the beginning of this year capturing the prevailing sentiment:

  • “Moody’s Lowers Downside Targets to $900 on Gold and $15 on Silver”
  • “Gold Prices Remain a Sell for Two Reasons”
  • “The Gold Rush is Over and Gold Bugs Know It”

Compare the above stories to our article, “Will Extreme Bearish Sentiment Lift Gold?” written 12/27 and you will see why our contrarian take on the markets has helped us stay ahead of the precious metals’ price moves.  We were calling for a sentiment driven turning point in their prices when most others were calling for continued weakness.

Followers of our research know that in late December we were getting our subscribers long the metals as sentiment had indeed reached an extreme on the bearish side.  The precious metals then rallied 10%+ as the leveraged (NYSEARCA:NUGT) and metal mining ETFs (NYSEARCA:GDXJ) rallied well over 30%.  (FYI, during the final week of December 2013 - just as hatred for gold assets peaked – we bought the GDX JAN 2013 20 call options (GDX140124C00020000) at around $140 and via intraday trade alerts on 1/2/14 and 1/9/14 we sold the position for a blended two-week gain of 27%. It was a great trade!)

But, headline reading isn’t the only way to identify sentiment extremes.

Sentiment Extremes

There are also more objective ways to measure gold and silver (NYSEARCA:IAU) sentiment which we captured and outlined as part of our analysis for our subscribers in the chart below. Speculators, which typically includes the media’s take on the markets, usually become the most bullish at exactly the wrong time.

In contrast speculators also become the most bearish (NYSEARCA:ZSL) at exactly the wrong time.

Check out the following chart which we included in our ETF Profit Strategy Newsletter published 12/21 that supported our thesis of getting long the metals.

Watch: Why We Were Long the Metals in December When Everyone Else Was Bearish

I can’t tell you all the details about the current state of the metals’ market sentiment, that is reserved for our subscribers, but I can tell you that we are now at another major extreme in sentiment as we position to take advantage of the next big move.

Is it a bullish extreme or a bearish one?  I know which way we are placing our bets.

The ETF Profit Strategy Newsletter uses sentiment extremes combined with technical and fundamental analysis to help identify the prevailing trends in the markets.  Readers receive actionable investment ideas and our biggest winner so far this year is a +188% timestamped trade from our 6/4/14 Weekly Picks.