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What Happened The Last Time Main Street Sentiment Was This Negative On Gold

Kitco News

(Kitco News) - The gold market continues to make headlines but for all the wrong reasons as bearish sentiment dominates the marketplace.

However, there are two significant questions on investors’ minds, how bad is the negative sentiment and in an overcrowded marketplace is gold due for a reversal?

The answer to the first question is that its bad.

For many in the gold space, sentiment, no matter where you look, is as negative as it can get.

The latest trade data from the Commodity Futures Trading Commission noted that net short speculative positioning hit a new record high last week, the seventh consecutive week of growth. Analysts at Commerzbank put the short-selling into perspective.

“Selling since the end of June now totals almost 260 tons – equivalent to nearly a month’s worth of global gold mining production,” they said.

Kitco News has been tracking weekly retail investor sentiment for three-and-a-half years and last week’s results were unprecedented.

Last week 2,411 people participated in Kitco News’ online survey and 74% of them were bearish on gold heading into the new week. Never has Main Street been this bearish on gold. The last time retail investors were this negative was a few months after Kitco Launched its survey.

On July 22, 2015 survey, 564 participated in Kitco’s online survey and 75% of them saw lower prices in the near-term. That was the same week gold hit a five-year low, dropping below $1,100 an ounce.  

However, three months after the 2015 July low, gold prices rallied nearly 11%.

Ultimately, the gains didn’t last as gold prices fell to a new multi-year low by December as the Federal Reserve raised interest rates for the first time in nearly a decade. But that has so far marked the floor in the gold market for the last three years.

Negative sentiment compared to the December 2015 lows is off the charts. Only 56% of Main Street respondents were bearish on gold heading into the Federal Reserve’s monetary policy meeting.

Kitco New’s weekly survey has also highlighted crowning bullish sentiment in the marketplace. In mid-April, bullish sentiment was near a historical pear with 84% of Main Street investors saying they were bullish on gold as prices peaked at $1,365.40 an ounce. Bullish sentiment reached its highest level a few weeks later at 89% as prices broke through $1,300 an ounce.

Looking ahead, George Gero, managing director with RBC Wealth Management said that while shorting gold is an overcrowded trade, sentiment and prices can still move lower.

“This will still be a difficult week for gold prices,” he said, adding that investors will be sensitive to hawkish comments from Fed Chairman Jerome Powell when he speaks on Friday at the global central bank conference in Jackson Hole Wyoming.

Gero added that a stronger stock market will also continue to boost the U.S. dollar and weigh on gold prices.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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