A Contrarian Analysis Of Gold Market Sentiment (GLD, IAU, SGOL)

I’ve received several emails from anxious readers during the past few days, wondering if they should have “sold in May and gone away.” Let’s look at a chart from last year and see if that strategy would have worked in 2009.

(Charts in this article are courtesy Stockcharts.com unless indicated).

Gold Bar Chart

Here is the daily bar chart for gold from last year. Selling in May (green rectangle) and going away would not have been a good idea in 2009. The good news is that the best buying opportunities for buying gold and silver usually come in May – June – July.

What if 2009 was an exception? Might ‘selling in May and going away‘ have worked in some other year?

Gold Data 1971 - 2007

This chart is courtesy Dimitri Speck at Seasonalcharts.com. He last updated this chart in 2007, but it covers gold data from 1971 to 2007. Here we see that almost every year the months of May – June – July offer some great buying opportunities. Good news!

Gold Weekly Chart

Featured next is the weekly gold chart. The blue arrows point to bottoms in the seven-to-eight week gold cycle. I watch this cycle continually in order to buy as close to the cycle bottom as possible and then take some profits near the top of the cycle. The cycle can bottom a week early or put in a bottom up to two weeks late. We are presently in week # 7 in the cycle and there is a good possibility that the low point reached on Tuesday, July 6, and early Wednesday, July 7,will turn out to be the bottom in this latest cycle right on schedule during week #7. In the event that these lows hold and we see gold and silver rising from here, then the next cycle advance will be underway. All we need now is confirmation that the cycle bottom is in place. That will come as the gold price rises and supporting indicators begin to provide confirmation. Cycle bottoms are good news.

Protecting Your Portfolio From Mr. Bernanke

Mr. Bernanke is getting ready to make good on his promise to drop money from helicopters.

This counterfeiting activity is bad news for people on fixed incomes, but good news for people who buy physical gold and silver to protect themselves from Mr. Bernanke and his Keynesian friends.

In the history of civilization, there is not one country that escaped the destruction of its fiat currency, once monetary inflation became part of the process … not one!

Gold Versus Currencies

This chart courtesy of the Bloomberg and Erste Group Research shows the depreciation of seven currencies measured against the price of gold. “A trend in motion remains in motion until it is stopped.” Until these currencies cease to be surreptitiously destroyed via monetary inflation, this downtrend (uptrend for gold), will continue. This is bad news for people who have bank accounts and good news for people who buy gold and silver, regardless of what month it happens to be. As Marc Faber likes to say: “The important thing is that you’re buying ounces.”

Gold and Gold Shares vs. Percentage of Total Global Assets

This chart courtesy Businessinsider.com and Erste Group Research shows the percentage that gold and gold shares take up within the total global assets at the moment, compared to four different eras.

The assumption is that some of these ‘other assets’ (99% in 2009) will be transferred into gold assets. A rise from 0.8% to 20% of the total is a minimum to be expected, as this will bring the percentage up to the 1932 equivalent. This should convince the reader that the current gold bull market is still in its infancy and that is good news.

Bad News For Gold Bears…

Capitalism is the financial system that puts capital to work. The true definition of a capitalist is someone whose capital is working for him or her.

Gold Sales to Gold Purchases for 1989 - 2009

This chart courtesy Wirtschaftswoche, Bloomberg, Wikipedia and Erste Group Research shows the remarkable trend reversal from gold sales to gold purchases in 2009, on the part of the Central Banks of the world. This is bad news for the gold bears (including the bullion banks that hold massive short positions), but good news for people who buy and hold physical gold (as opposed to ‘paper gold’, which is after all just a promise).

It is in the interest of central banks along with the bullion banks that are co-operating, to keep the price of gold as low as possible, to hide the effects of monetary inflation from the public.

Silver Content of the Roman Denarius

This chart, courtesy Businessinsider.com shows us that monetary inflation (watering down of currency values), is nothing new. The silver content reduction from nearly 100% down to 8%, was done gradually over a period of hundreds of years. A lot of people never noticed the trend!

This trend is bad news for people on fixed incomes and those holding fixed rate investments. It is good news for people who own pure gold and pure silver.

Monetary Inflation and U.S. Recessions

This chart courtesy Federal Reserve Bank of St. Louis, muzzles the members of the deflation crowd who say there is no monetary inflation. ‘Liars can figure, but figures don’t lie’ (to paraphrase an old saying), and this chart is quite convincing.

Good News For Those Who Own Gold and Silver

Silver Daily Chart

Featured above is the daily silver chart. Price is carving out a bullish inverted head and shoulders pattern. A breakout at the blue arrow sets up a target at 30.00

The green arrow points to the positive alignment between the 50DMA and 200DMA while both are rising. That is good news.

Gold’s huge drop on Thursday, July 1, is not the beginning of a new major leg down for the yellow metal. That at least is the conclusion reached by a contrarian analysis of gold market sentiment. There does not currently exist the kind of stubborn optimism among gold timers that is the hallmark of major market tops…The bottom line? “The sentiment winds will be blowing strongly in the gold market’s sails in coming sessions …” – Mark Hulbert

(And that is good news for those who own gold and silver).

Good investing,

Peter Degraaf (Writing for InvestmentU.com)

Peter Degraaf is an online stock trader with over 50 years of investing experience. He provides his subscribers with a Weekend Report and a Monday Morning Update. For active traders he provides a daily message Tuesday through Friday. For a sample copy visit his website www.pdegraaf.com.

Related ETFs:

SPDR Gold Shares (GLD)

The investment seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation. Total Expense Ratio 0.40%

iShares COMEX Gold Trust (IAU)

The objective of the trust is for the value of its shares to reflect, at any given time, the price of gold owned by the trust at that time, less the trust’s expenses and liabilities. The trust is not actively managed. It receives gold deposited with it in exchange for the creation of baskets of iShares, sells gold as necessary to cover the trust’s liabilities, and delivers gold in exchange for baskets of iShares surrendered to it for redemption. Total Expense Ratio 0.25%

FS Physical Swiss Gold Shares (SGOL)

ETFS Physical Swiss Gold Shares (“the Shares”) are issued by ETFS Gold Trust (“the Trust”). The investment objective of the Trust, Symbol: SGOL is for the Shares to reflect the performance of the price of gold bullion, less the expenses of the Trust’s operations. The Shares are designed for investors who want a cost-effective and convenient way to invest in gold. Total Expense Ratio 0.39%

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