Sunday, November 27, 2016

Gold Market Sentiment & Structure Confluence

In the last post we suggested that the trend in the Gold market is about to exhaust itself based on structural analysis (link). Since then the gold declined for a day and helped solidify the pattern, along with pessimism, necessary for a sustainable bounce.

Gold Sentiment
Gold sentiment has dipped to levels last seen near last year's lows. Following snap shots are from Daily Sentiment Index values on Nov 21.

Following chart shows longer-term DSI values (originally published by Taylor Dart). We can see that DSI is at lowest levels seen in last year.
Gold miners are also extremely oversold. They are at levels where we have seen major bounces in the past. This bounce can turn into major rally, dependent on internal market strength.

Hulbert index also shows that the sentiment is now negative 18%, which means that the average newsletter writer is now recommending shorting gold. Even though it is not at the lowest level, we have seen higher lows in the sentiment at the bottom. So it's possible that gold prices might bottom with a little elevated sentiment.

Market Classification Model
Along with all the positive developments on the sentiment front, the Market Classification Model remains in a bull market for Gold. As a result, we should not only expect a bounce but a resumption of the uptrend. This resumption could lead to acceleration to the upside. If the market completes the inverted head and shoulders pattern, we could easily see 1800 in 2017.

In the next blog post, we will discuss Fundamental reasons that could support this rise in Gold prices including asset rotation and Indian decision to restrict currency.

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