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Opinion: Investors are sick of gold, and that’s why it’s time to buy now
Poor gold bugs. Everywhere they turn, another can of Raid.
Gold is “doomed,” says one gloomy headline. Gold demand is the weakest in six years. And perhaps the most insulting: Gold is just a “pet rock.”
Ouch!
For contrarians, about all we need now is the classic negative magazine cover to confirm it’s time to buy gold.
But really, there’s no need to wait for that. Sentiment is already gloomy enough. It’s time to buy gold — at the very least for the bear market rally that will soon take the metal 10% to 30% higher, say several gold experts.
“People are gratuitously ganging up against gold,” says John Hathaway, manager of the Tocqueville Gold Fund TGLDX, +1.43% To him, the current price smackdown is “symptomatic” of a tradable bottom. “You see this supreme confidence that you can’t lose by being on a certain side of a trade.” That would be betting against gold.
“Capitulation in the gold miners is telling us the selling should be over soon,” says Lawrence McDonald, head of U.S. macro strategy at Societe Generale. “We are witnessing seller exhaustion, and we don’t believe the recent breadth of the selling is sustainable.” He’s betting on another bear market rally. And soon.
Credit Suisse gold analyst Anita Soni says gold is poised for a rally in the third and fourth quarters because the bearishness is overdone. She puts the trading range at $1,100 to $1,300 per ounce over the next several quarters.
Besides the tradable bounce, you might also want to take advantage of low gold prices to put some in your portfolio as a form of disaster insurance. More on that logic in a moment.
News headlines are a great way gauge sentiment, to line up contrarian plays. But there’s no shortage of quantitative measures for gold, too.
The short position, which measures the depth of the bet against it, is very high, points out Rohit Savant, the director of research at CPM Group, a commodities-research firm. He says investors were short 16 million ounces of gold as of July 21, 2015, compared with an average of 3.9 million since 1995. The last time the short position was that high — near record levels — was July 2013, and that was promptly followed by a 36% surge, according to analysts at Barclays.
The bullish percent index (BPI), a technical indicator that measures the number of stocks in a group that are in a bullish trend, was recently at zero for gold miners. That marked good entry points for gold in 2008, 2013 and 2014, points out McDonald. “This has been a good ‘buy’ signal indicator,” he says.
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