Gold Bullish Sentiment Hits 19-Month Low

Gold Bullish Sentiment Hits 19-Month Low reports that bullish sentiment towards gold prices has hit its lowest levels in 19 months:

Bullish sentiment toward the gold price continues to drop, evidenced by the current 60% Market Vane Bullish Consensus reading on gold. This is the lowest level since December 9, 2008 – a few weeks after the gold price plunged under $700 per ounce.

Sentiment indicators usually rise and fall with prices – illuminating the investing paradox that the crowd loves asset near price tops, and hates ’em near the lows.

At extreme levels of bullishness or bearishness, these indicators can be useful for giving a heads up on potential upcoming changes in trends.  When you see a bullish indicator south of 5%, or north of 95%, you want to pay close attention.

In the middle, though, I find these indicators to be less useful.  At 60%, there are still plenty of buyers and sellers on each side of the trade.

Very recently, when making new highs, gold was north of 95% bullishness based on another sentiment indicator.  So I’m not sure I’d be a buyer of gold at these prices, as it seems like there would be some significant room to the downside.

But it really depends if you have an inflationary or deflationary outlook.  If you’re anticipating inflation, these may be good prices to “get long” gold.  But if you’re a debt deflationist like myself, I’d prefer to see more of this bad credit written off before we buy gold, as I think we’ll see better buy-in prices from here.

Related Reading: Why Dr. Doom Marc Faber believes you should own some gold.