Earlier in the week we looked at the situation the gold market finds itself in with the precious metal sitting at the important $1000 level. I offered various takes on the technical position as well as the sentiment for gold. Here I want to delve in a bit deeper into the sentiment to see if we can glean whether there is any excess optimism which would flag a contrarian sell signal.
Here is the Google Trends chart for the keywords “buy gold”:
Not surprisingly, the peak occurred in the week of October 5th 2008 (3.66). The keywords: “how to buy gold” also reached a peak a bit earlier on Sept 21st, 2008 (not shown in graph). That’s still around the same time. This was, of course, right around the time that the equity market was getting a shellacking.
The term “stock market crash” reached a peak in Google searches at the same time (October 5th 2008). But right now, while slightly elevated, this makeshift indicator isn’t really signaling an excessively speculative sentiment towards gold. Of course, this is noteworthy because gold is trading about 20% higher than it was in October 2008.
In my earlier analysis of the gold market, we looked at the Commitment of Traders report, MarketVane’s as well as the Hulbert Gold Newsletter sentiment indexes. Let’s take a quick look at several other measures of sentiment for gold:
Guy over at the Technical Take mentions the asset levels in the Rydex gold fund. While the Rydex investor is the trigger happy type to jump on a trend, either long or short, there is no evidence that they have piled on gold at this time. There is only about $200 million in the Rydex Precious Metals Fund. I agree with Guy, there is a distinctive lack of froth.
Put Call Ratio
The put/call ratio for gold is also in neutral territory. This is the options data on the futures contracts which is about as speculative as you can get considering the built in leverage. There was a slight uptick in call buying as gold made its latest move towards $1000 but even as that level has been pierced, the put/call ratio has backed off (traders are less optimistic).
The consensus from several different measures of gold sentiment is that there is mostly a shrug of the shoulders from traders and investors in reaction to the latest rally in gold. The only conflicting data point is the CoT report which shows small speculators in the futures market heavily long gold contracts.
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