Friday, June 25, 2010

Despite The Word Spreading About Gold...

...sentiment is less bullish than it was in early 2008. This point, Jordan Roy-Byrne makes by citing two statistics: open interest and bullish sentiment among the general public.
Sentimentrader.com’s public opinion is simple but effective. It shows what percent of the public is bullish. Their data shows that the public was actually more bullish on Gold from 2005-2008 as public opinion spent a fair amount of time in the range of 75% to 90% bulls. In the last 24 months public opinion has yet to surpass 75% bulls.

COT data is another way to gauge sentiment. Did you know that open interest is about the same as where it was at the 2008 peak? Gold has climbed nearly 25% yet open interest hasn’t accelerated the way it did in late 2007.

Why do we focus so much on sentiment? Sentiment is more important in the precious metals markets as they are emotionally driven. Sentiment helps us predict and measure potential volatility. It helps us gauge short and medium term risk.

Even after 20 months of record gains in the precious metals and related shares, sentiment remains relatively favorable. In fact, it looks better relative to 2006 and 2008. With the collapse of 2008 still fresh in mind, investors are quick to worry and that worry is sustained and enhanced by the sustained advance in the metals and shares.
He marshals these points to counter the claim that gold is at the climax of a bubble. He ascribes those claims to what he calls "bubble fatigue," caused by other bubbles over the last ten years popping.

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