In both gold and silver, the New Year brings technical readings as oversold as those seen in the 1980-1982 bear market. Some technicians claim that they have never seen such oversold conditions in the mining equities- a pretty strong statement when you think about past bear markets in the mining stocks. In the gold market, ETF holdings, by some measures, are as low as early 2008—before the financial crisis.
Speculative positions on electronic futures platforms are also at lows not seen in over eight years. From the perspective of Wall Street, hedge funds, and other western commercial banks, it really looks as though the 2008 crisis is a distant memory. We can all just go back to making fortunes in the conventional stock markets and forget about the need for those barbarous, inconvenient, bulky hedges like gold and silver.
Yes, complacency reigns, as more and more people focus on the recovery (at least according to official data) here at home in the United States. This complacency has likewise triggered a parabolic move in the conventional stock market—although I admit that parabolic moves can last longer than anyone thinks possible. Yes, there is a longer term question as to whether or not we are seeing a secular bear market in gold and silver, coupled with a secular bull market in equities (think 1980s and 1990s). Still, the conventional stock market is seeing overbought technical readings consistent with prior market peaks (whether or not the longer term picture remains positive for equities.)
For the intermediate term, there is no question in my mind that if you are a seller of gold and silver here you are selling at or near the bottom- while if you are a buyer of stocks you are buying at or near the top. The fact that the increase in the S&P 500 last year almost exactly mirrored the decline seen in the gold market may also tell you something about the irrational hopes of those who are mindlessly, breathlessly simply chasing the most recent, hottest investment trend. You would do well to try to buck that trend, even if it takes time for you to be rewarded.
The swing in sentiment towards deeply bearish expectations for the precious metals is further seen in 2014 forecasts for the metal released by major banking firms like HSBC, Deutsche Bank, or Societe Generale. From what I have seen coming from analysts, none are expecting an average silver price of much above 20 dollars (and many think gold will actually drop to below 1100.)
Of course, these kinds of predictions should be read as a contrarian indicator. Looking at outlook coverage from the major banks, the comparisons to the start of 2013 are striking. In spite of what some may now be saying— none of the major analysts saw the 2013 precious metals crash coming. Now, in 2014, they are back to their old ways of predicting ever lower gold and silver prices. Sound like a reason to bail on the metals?
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