What did 91% of gold traders have in common back in late February-early March?
Answer: They were all positioned on the wrong side the market; i.e. they were bullish.
Case in point: From January to February 29, gold prices had soared $250 per ounce to their highest level in 4 months.
- Gold stood within spitting distance of the psychologically important $1800 per ounce mark.
- Money managers held their largest bullish bet on COMEX gold futures and options in 4 months.
- The Daily Sentiment Index (trade-futures.com) stood at 91% bulls, the highest reading since September 2011.
And, as the following slew of mainstream news items from the time show, the popular experts were fully on board the gold bull bandwagon:
- "After crashing last fall, gold has regained its allure as investors once again seek out a stable place to store money." (LA Times)
- "We do not see any change to the bullish drivers for gold in the short-term." (Reuters)
- And even after gold's February 29 $70-intraday free fall -- the bullish enthusiasm held firm: "A rogue wave of risk aversion roiled the precious metals markets. It was a textbook pullback. But Gold still looks strong." (CNN Money)
But on February 29, the uptrend in gold ended, and since then gold prices have seen a $240-plus freefall to a new low for 2012.
As for the 9% who saw the drop in gold coming beforehand -- we can name at least ONE member of that minority group: EWI's Metals Specialty Service. Here we go back to the beginning of gold's March-May decline and review the insights from Metals Specialty Service editor Mike Drakulich:
"We remain at an important and difficult juncture in trying to determine if a large fifth wave rally is ending (or has ended) or might still try to extend higher... The key for now is how high this likely fifth wave might go; we have done the 'minimum' requirement... Note that once five waves up complete, we could correct the entire advance from 1522. For now, let's look for possible signs it could have ended."
"The fifth wave up we've been looking for in GOLD is now very likely in place with today's wild action and sharp decline. Once you take a step back from this incredible volatility, the huge key is we now have a likely complete five wave rally from 1522 to 1791 and this gives us an excellent forecasting road map in the days and weeks ahead."
Now that prices have fulfilled their bearish Elliott wave script, Metals Specialty Service has gone on a watch for confirming price action that would indicate a new trend change is at hand.
Metals Specialty Service Editor Mike Drakulich uses the Wave Principle and 30 years of market experience to help you replace the endless market possibilities with higher-confidence probabilities.
Subscribe today to get Mike's expert intraday and daily Elliott wave forecasts complete with key price levels, targets and valuable insights for gold, silver and other major metals.
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