Gold Sentiment – A Contrarian’s Dream?

Anecdotal Sentiment

This is not going to be a complete update of gold sentiment data, we just want to look at recent press reports on gold and show how they correlate with trader positions and opinions.

Yesterday we happened to look at the market news headlines posted at the start page of Yahoo Financial. These were the top headlines:

Gold loses luster as retail investors look to silver

Here’s why gold could be headed to $800: Insana

A few quotes from the second article:

“…in the absence of a full-scale geopolitical crisis, economic collapse, or other “black swan” event, there is no good reason to hold gold — at least here in the U.S.”

Of course, it is in the nature of “black swan” events that they are unforeseeable, or at least unforeseen by the majority. Their current “absence” is a meaningless datum with respect to the future.

“….even a cursory look at inflation indicators, be they the level of global interest rates, inflation expectations as measured by TIPS (Treasury Inflation Protected Securities) and the direction of inflation, itself, do not suggest that gold, in dollar terms, can, or will, go meaningfully higher in the days ahead.”

A “cursory look at inflation indicators” would not have revealed any major increase in inflation expectations in any of the 10 years during which gold rallied from $250 to $1,900 either. Obviously, there are other drivers that are just as, if not more important, for the gold price.

“….the longer-term view remains bleak.”

Only if one subscribes to the notion that six years (and ongoing) of unbridled central bank activism will have no negative consequences. Even though that flies in the face of sound economic theory and all experience, it is admittedly the consensus right now. When the peak of the last central bank-induced bubble came into view, consensus opinion was very similar. Even once the crisis arrived, gold bears were fond of saying: “If gold cannot rise now, it never will” (i.e., the “longer term view was bleak”).

Next comes the piece de resistance though:

“If you’re still looking for a safe-haven investment, a better option would be large-cap stocks with lots of cash and good management.”

We have heard a lot of things said about stocks in the course of the current bubble era, but this is the very first time we are coming across someone referring to them as a “safe haven”.

On Marketwatch we found this yesterday:

Oil, other commodities will be in the dumps for another decade (gold is one of those “other commodities” the article focuses on. The author informs us at the end of the report that he is throwing the towel and selling all his positions in these sectors. He incidentally also seems to think he knows more about the markets than Jim Rogers. Rogers is not always right about everything, but we have our doubts about that).