Be Aware of This Extreme Development in Gold
Investors are making a record bet on gold ETFs
by Bob Stokes
Updated: April 14, 2020
Sentiment extremes -- positive or negative -- often serve as red flags in financial markets.
The reason why is that these extremes often occur near key turning points in prices.
Consider silver, and the negative sentiment toward the precious metal about a year-and-a-half ago.
On November 14, 2018, after silver had been declining for 5 months and had just made a new 2½ year low at $13.87, we issued a rare, combined Elliott Wave Theorist / Elliott Wave Financial Forecast Interim Bulletin that said, in part:
Silver may have made its low for the year this morning.... Sentiment is one-sided. The percentage of bulls is very low.
As it turned out, silver bottomed that very day and then rallied for several months.
Then, in Aug. 2019, sentiment turned decidedly bullish. Our Sept. 2019 Elliott Wave Financial Forecast showed this chart and said (published on Aug. 30, 2019):
This week started with a higher gap opening. Interest in silver is naturally increasing as prices do, as shown by the record rise in the monthly volume in silver put and call options.
Five days later, silver had hit a high of $19.69 and has been trading lower since.
Now, sentiment is not everything, and it's not always a precise timing indicator. Markets can stay overbought or oversold for a long time. But you'd be hard-pressed to find a market reversal without a sentiment extreme.
With that in mind, let's now segue into what's going on with gold. Here's a chart and commentary from our April 2020 Elliott Wave Financial Forecast:
This chart shows that total gold holdings by ETFs jumped to a new high on March 31. Investors are speculating to a record degree that gold will continue to rally, even though prices are not at new highs.
It's an extreme all right. But right now, gold's Elliott wave pattern provides an even more detailed snapshot of investor psychology.
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