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Extreme Fear Is Here; Is This The Start Of A New Era?

Kitco News

(Kitco News) - The CNN Fear & Greed Index is currently at 7 — the “Extreme Fear” category, which is a notch lower than Wednesday’s close at 8, when the Dow Jones Industrial Average plummeted more than 800 points.

The index tracks seven indicators to gauge investor sentiment in the markets: stock price momentum, stock price strength, stock price breadth, put and call options, junk bond demand, market volatility, and safe haven demand.

While stocks tanked on Wednesday, volatility spiked, with the VIX up 43%. Gold rallied 2% on Thursday morning in response, contributing to the “safe haven demand” component of the index.

The long-term trend of the Fear & Greed Index has been steadily trending towards the “Fear” category over the last 12 months. One year ago, sentiment was “Extreme Greed,” which deteriorated to “Greed” one month ago, and then to “Fear” one week ago. Now, the index is at “Extreme Fear” — the furthest category towards a fear sentiment.

“Extreme Fear” hit the markets just as U.S. bond yields remained at 2011 highs, trading at 3.16% as of 11:37 am EDT on Thursday.

Several analysts have noted that negative economic data, and in particular, a shift away from stocks is necessary for gold to rally.

“I still think it’s going to take some combination of economic data that causes investors to become more concerned about stocks and more interest in gold again,” Jeffrey Christian, managing partner of CPM Group, told Kitco News on the sidelines of the Denver Gold Forum.

Gold is still down 6% on the year, while the S&P 500 climbed 3% in the same period. Gold miners, as a whole, underperformed the bullion in 2018, with the VanEck Vectors Gold Miners ETF (GDX) down 17% year to date.

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