Gold Swings from Long-term Over-hated to Short-term Over-bought

Gold Swings from Long-term Over-hated to Short-term Over-bought

By, Simon Maierhofer

Thursday August 13, 2015

Gold traders - particularly the ‘dumb money’ - were extremely bearish on gold a couple of weeks ago. But after a 5% rally, gold actually became overbought yesterday. What does the mixture of long-term over-hated and short-term overbought mean?

Gold was over-hated just a few weeks ago. The July 21 article “Gold Looks So Bad, it Might Actually be Good” observed the following:

“Gold is having another bad year, and most ‘pros’ are looking for even more losses:
“Gold teeters near five-year low after ‘bear raid’, more losses expected” – Reuters
“3 Trends that are burying gold prices” – CBS News
“Why gold is falling and won’t get up again” – MarketWatch
“The one chart that shows that gold may not be as safe as you think” – The Independent

Every gold bear should know that the market has a nasty habit: It likes to fool the crowded trade.

Based on the above headlines, short gold is the crowded trade.”

Click here to view the chart that suggested a gold rally was due.

This week, gold gained as much as 3% (gold rallied as much as 5% from the July low).

However, sentiment has quickly swung from long-term over-hated to short-term overbought.

Yesterday’s (Wednesday’s) Profit Radar Report stated that:

“Gold popped this week and is short-term overbought against resistance. Due to the extreme pessimism, gold may shrug off the overbought condition better than normal, but the vertical gray lines suggest a pullback.”

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The following chart went along with yesterday’s PRR update:

Based on sentiment and seasonality, the gold rally should continue for a while longer, once this pullback is complete. A drop below 1,100 would caution of a relapse to new lows.

Continuous gold analysis is provided by the Profit Radar Report.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

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