This recent survey I read about Wall Street and Main Street, being bullish on gold was very interesting. It shows that Wall Street experts are bullish on gold by 62%, while the folks on Main Street are 74% bullish. By no means is this an extreme bullish consensus, but for gold already in a 6 month bullish phase, these readings would be extreme.
If we look at it from a contrarian perspective, we have to ask ourselves, “who is left to get in”,? Who are those smart experts or mainstream people that can push these sentiment numbers much higher? George Soros is bullish on gold, but he does not count, as he can stay bullish on gold and not blink an eye, while Main Street goes broke waiting for a massive bullish cycle.
When this much bullish attention is already present in gold, then the upside could be very restricted. I am sure you may have read that this bullish mood is good for gold, and the fundamentals all point to higher gold prices. The trouble with fundamentals is that they are all lagging indicators. They are useless to forecast the future price of gold.
Everybody was bullish on gold in mid 2011 and look what happened after, as gold plunged into a bear market. A bear market that has traveled much more than their perfect 20% decline. It even touched close to being a 45% decline, so they all declared the gold bull market dead.
Meanwhile, all of the wave analysts were counting a correction, after which gold would carry on to new world highs. We counted every pattern under the sun and yet every rally until now, has never lasted. Bearish rallies always get completely retraced, and the only question is, “Has this gold rally been a fake”?
There is no way I can create a good set of big parallel lines, but if we connect two big peaks, we now have a line in the sand to work with. For gold to be in a much bigger bullish phase, then it has to blow the lid off this top trend line and soar. Since the 2013 bottom the gold pattern has dramatically changed and turned into one crazy overlapping decline. From my Cycle degree perspective, this choppy pattern is a good sign as they are diagonal patterns. It is pretty hard to push them into impulse wave patterns and we should never try if we see them. For this entire gold bearish phase, which may end up being a Primary degree 4th wave correction, there were virtually no great impulse waves that we can count out.
Right now we have a potential $1200 gold base, but if gold is still in its bearish funk, then this $1200 base will not hold. $1050 will not hold as well, but a few points below those 2015 lows, will surely confirm that gold’s recent rally has all been a fake. We can argue about the fundamentals all the time, but good wave counts and market sentiment will always tell us to do the opposite thing. In hindsight (2011), we can now see that being bullish with the herd, was exactly the wrong thing to do. Does that stop anyone from doing it again? Not on your life, as the majority will buy high and then sell out low in disgust. This will happen over and over again, and as long as there are humans with money, it will keep happening.
If that $1300 peak ended with an ending diagonal, then this would also make a strong case for the bearish side. On a small scale gold is pointing up, but stocks are pointing down a bit. Many may have charged into gold as a safe-haven, but if there are too many bulls then this will not work in the long run as well. The real boost in gold prices would be, if the US dollar starting a long drawn out decline. This has not happened yet as the US dollar still wants to go up!
Gold could go into a real funk for the rest of the year or into the fall, but I sure will turn bullish once this potential scenario plays out.