I WILL GIVE THEM THIS, THEY ARE CONSISTENT
One of the things I do respect about Gold Bugs or any other people who become fixated on one asset class and think it will rise forever ( see housing circa 2005, Internet Stocks 1999 ) are the incredible faith they have in their view. Having faith in what you are doing is imperative to have success in any walk of life. If faith matters these guys will all be billionaires. However, blind faith can be very dangerous, it can lead you right over a cliff. I used to be a systematic trader, and I can tell you nobody had more faith in what they were doing than I did. As I watched my Bond and S&P systems rake in the money, boy did I have big plans. However, a funny thing happened on the way to those big plans, things changed.
One of the qualities that most great traders have and also great athletes have, is the ability to adapt to changing conditions. One of the constants in life is change. You have to accept that having rigid views on things will only be in sync with what is happening for certain periods of time, then they will be out of sync. During the times where there is harmony, that is where you have your success, but at some point you have to be willing to dismount from those views before they bring you down. I have written about this before, but just to mention it again, it was having flexibility that saved me from ruin when my systems crashed. In the case of my Bond system I was actually able to realize it was going to fail before it even had a losing trade. I actually had a profitable year using it the year it crashed. I was able to do that because I was not so rigid in my views that I did not see the writing on the wall that it was headed for trouble.
When I saw that writing it was profitable for the year at the time, and I decided to stop trading it because of something I saw developing that I suspected was going to cause it trouble. As I sat back and watched it literally crash right in front of me, I was very proud of myself that I was able to see it coming. What I see with the Gold crowd is a blind faith that no matter what happens in the world every day, every week, every month, and every year, they see the price as rising. This degree of one sided thinking is dangerous. It would be just as dangerous to think it would decline in perpetuity.
My favorite group, I will call them the Gold Bug Group ( not their real name ), issued a statement today citing various experts who claim Gold is the most hated it has ever been in history. They cited some Sentiment report I have never heard of in supporting their argument. How do I know? I get their emails unfortunately, but I like to read them because they are always so negative on everything that it is good to hear the other side at times. I am sure if you go farming you can find fresh veggies and in the same vein, if you go data mining, you can find something to support your view for a trade. I have the same Sentiment Index I always use displayed on the chart. It does in fact show the it has gone into the negative zone. It does not show that it has gone overly negative, there are more negative readings you can see just on the screen without having to go further back in time.
To their credit they did say that negative Sentiment means more in an uptrend than in a down trend. This next chart shows examples of this.
You can clearly see here that when we had that strong up trend, and sentiment reached negative readings where I have the 3 arrows, great rallies followed. This is the correct way to use sentiment. As you can see on the right side of the chart, we have now entered a down trend. The way to use sentiment now is to look for it to be bullish on rallies to sell. That is exactly what I did in entering the Gold and Silver trades I am in. These trades are now profitable enough where even if my trailing stop is hit they will be exited for profits even if they don't become big wins.You really want to sell rallies in a down trend and using sentiment to time them is a very good way from a fundamental perspective to do this. For all I know the current trades I am in are not spectacular, but they are in sync with the trend, and that is the goal. The Gold Bug Group after acknowledging the trend was down quoted some expert whose opinion was that Gold was in a long term up trend and therefore the current price trend should be ignored.
This is the type of thinking that is very dangerous. Buying dips in a downtrend is not the same as buying them in an up trend. It may work, but the odds are not favorable regardless of what sentiment is telling you. You need to have the trend in price line up with your views, if you wish to trade like that. In fairness to the Gold Bug Group, the commentary did say you could wait until the trend turned back up to get long again, and it still would be a good trade you would just miss some of the gain. That again is correct thinking. Let to trend confirm your view, then double down on Granny if you wish. Do not be blinded by your view.
I would not be surprised to see Gold and Silver bounce here, they seem to want to hold the level they hit today. However, I don't use that type of subjective thinking in entering or exiting trades. It is merely an observation.