Bearish Sentiment Leading to a Turn in Gold?
Dennis Gartman has been directly involved in the capital markets since 1974 and has been publishing his daily commentary, The Gartman Letter, since 1987. Mr. Gartman is a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) and lends his institutional insight to educate advisors and investors about trading gold in different currency terms.
Gold, like all precious metals, has been under severe pressure recently falling $50/oz over the last 8 trading sessions. We do, however, find one thing compelling in gold’s favour: the level of bullish enthusiasm for gold as measured by the Market Vane’s Bullish Consensus number has fallen to a new multi-month low. Only 28% of those “polled” are bullish of gold at this point. Even more interestingly, only 20% of those polled are bullish of silver. These very low levels of bullish support are interestingly co-extensive with increasingly smaller net short positions on the part of the “commercials” in the gold futures market, which in the past have marked major bullish turning points for gold and have done so in an uncannily prescient manner. They marked the bottom in the summer of ’13 just before gold rallied nearly $250/oz.; they marked the bottom again at the turn of ’14 when gold rallied about $150/oz.; they marked the bottom in in the early summer of last year before gold’s $75/oz. rally; they marked the bottom again late last year before the last rally that carried gold from approximately $1150/oz. to nearly $1300. Now, after the recent sharp break, the commercials are once again holding inordinately low levels of short positions and our bullish interest is piqued as a result.
We remain, as we have for a very long while remained, long of gold in EUR and Yen related terms. However, we have shifted the focus of our position taking, having reduced our exposure to EUR/gold and having increased our exposure to Yen/gold instead. We’ve done so simply because the bearishness regarding the EUR itself has reached uncommonly severe levels while the interest in being short of the Yen has waned. Call it trader’s intuition or call it what you wish, but thus far that decision has proven wise. We shall see if it proves wiser over the course of the next several weeks.