Possibly More Good News for Gold Bugs: Sentiment Remains Lukewarm
November 7th, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
I’ve speculated that maybe we were seeing the public participation phase on gold. Well, maybe not.
Maybe not even close.
Excellent article here. Sums up a lot of late breaking information, and previous concepts covered on Cryptogon re: contrarian indicators.
Via: Seeking Alpha:
John Dizard, writing in the FT Monday, (‘Treading the foothills of a gold bull market’ ) outlined why he believes that we remain in the early stages of the gold bull market with a long way to go yet. Primarily this is because the mass of investors have yet to partake in the gold bull market and because the Fed is going to have to reinflate further which will be bearish for the dollar and as gold remains an important monetary instrument it will be bullish for gold. “So, even at about $800 an ounce, the real gold bull market has not begun.”
Despite gold reaching new record 28 year highs above $800 the sentiment towards gold remains lukewarm at best. Most of the UK, Irish and international financial press and media barely covered or ignored this significant development at the weekend. This, and the fact that the investment public remain unaware of the gold price and the merits of investing in gold are classic contrarian indicators which show that gold remains in the early stages of its bull market. When gold is covered as headline news in newspapers on a daily basis and articles appear regularly about the merits of investing in gold and how to invest in gold, then it will be the later stages of the bull market and an indicator that it may be time to sell. When stockbrokers start telling their clients and the wider investment public to buy the gold ETFs, it will be time to sell. When there are gold and commodities supplements alongside property supplements in major newspapers it will be the time to sell. When the topic du jour on the dinner party circuit is “how great my gold investments are performing,” it will definitely be time to sell.
Bull markets end in mass participation and mania and we are a long way from there yet. Besides this obvious lack of animal spirits and wholesale bullishness towards gold, it is also important to remember that gold remains undervalued. Gold will have to at least reach its inflation adjusted high of $2,200 per ounce (as oil and many other commodities have already done) before it could be considered fair valued or over valued.
Boris Sobolev of the Resource Stock Guide wrote perceptively: “What if, however, we are wrong and gold is now, in fact, making a final spike to its all time high of $850 or higher. The aftermath, as after the top in 1980, could be severe and it would be time to sell? Is this a real possibility?”
No, the situation today is completely different:
• In August 1979, Paul Volcker became the chair of the Federal Reserve and started to fight inflation by radically raising interest rates. Today, Chairman B. Bernanke, in an effort alleviate the pain in the ailing banking system, is aggressively lowering interest rates. • 28 years ago, the United States was the biggest creditor nation in the world. Now, the opposite is the case – U.S. is the largest debtor. This, along with the Fed policy, is causing the dollar to fall to historic lows.
• Gold may appear to be overextended but this is not the case in real terms. In fact, gold should be around $3,000/oz in order to reach its inflation adjusted highs. Only then will there be a real reason to worry about a possible end of the gold bull market. We reiterate that the gold bull market has a long way to go. Don’t be afraid to miss the boat – there are many opportunities ahead. Hold your positions and buy the dips.
