What to Make of Gold’s Rally at This Juncture
This sentiment indicator hits its “highest extreme” in nearly a year
by Bob Stokes
Updated: January 25, 2023
Many investors are bullish on gold as the yellow metal has staged a solid rally since early November.
Indeed, our Jan. 20 U.S. Short Term Update provided specifics about investor sentiment:
[During the past few weeks], the Daily Sentiment Index Indicator for gold pushed to 92, the highest extreme since it hit 95 in conjunction with [an Elliott wave top] on March 8, 2022.
At that March 8, 2022 top, gold's price hit $2070.29 and around that time, many headlines attributed the precious metal's price rise to Russia's invasion of Ukraine. In other words, as this headline from March 6, 2022 says, gold was seen as a safe haven (CNBC):
Gold climbs to levels not seen since September 2020. How ETF investors are playing the ‘safe haven' metal
However, even though most investors were bullish on gold and many saw it as a safe haven investment, the price of the precious metal entered a period of substantial decline beginning in early March.
The point is: Be aware when sentiment towards an investment reaches an extreme, either bearish or bullish.
As our monthly Elliott Wave Financial Forecast once noted:
When virtually everyone is bullish, there's no one left to buy.
So, after that multi-month decline and subsequent rally, gold has once again reached a bullish sentiment extreme, as noted a moment ago. Here's a sample of 2023 headlines:
- Why Gold's Rally May Last (Barron's, Jan. 5)
- Gold surges to 6-month high, and analysts expect records in 2023 (CNBC, Jan. 3)
Now, this renewed gold bullishness doesn't mean the price will turn downward immediately. Sentiment extremes can persist for a time.
However, the current sentiment extreme is definitely a factor to keep in mind.
Another factor to consider is gold's price action in relationship to silver's.
Our Jan. 20 U.S. Short Term Update discusses a divergence between the two precious metals about which you need to be aware, as well as gold's Elliott wave structure.
Learn what you need to know by following the link below.
Our Elliott Wave Financial Forecast Once Said:
"Markets can't fool all of the people all of the time, but they do fool most investors at the most important times."
With that in mind, do know that key financial markets are either at or approaching "important" price junctures.
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Since most investors are fooled at the most important times, it stands to follow that it's usually best to avoid crowd behavior.
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