The rising bearish sentiment is a positive sign for gold prices

The gold price advanced $11.44, or 0.7%, to $1,630.15 per ounce on Thursday following its worst two-day stretch in over a month.  This morning’s strength in the price of gold was a welcome respite from the substantial selling that has engulfed the gold price of late.

The recent sell-off in gold has been accompanied by a notable drop in sentiment toward the yellow metal.  The latest weekly Bloomberg survey of gold analysts, traders, and investors showed the largest bearish reading since December 30.  Fifteen of 29 participants predicted the price of gold will decline next week, 5 forecasted no change, and 9 expected higher prices in the coming week.

From a contrarian perspective, the rising bearish sentiment is a positive sign for gold prices – particularly based on recent history of the Bloomberg survey.  On December 30, 2011, the yellow metal had only one day earlier reached a multi-month low of $1,523.90 per ounce.  Over the next month, gold futures surged to as high as $1,750.60 per ounce.

Nonetheless, although the data is an encouraging sign, only with the benefit of hindsight can one truly say if a significant bottom actually formed in the price of gold.  In addition, sentiment is only one of many bullish or bearish factors that can influence even short-term movements in gold.

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