Gold broke down today as it pierced through its November 2014 low of $1,130 per oz.
If anything, interest in precious metals has completely collapsed. That is evidenced by falling trading volumes, but also by the ultra-bearish sentiment. Try a search on google or twitter, you will find consistently negative commentary and opinions.
Now that type of sentiment is a characteristic of a rock bottom. In fact, our belief is that we are very close to gold’s final bottom.
The opposite is true as well. When everyone is consistently bullish, it is time to sell. Case in point: on August 22nd 2011, one day before gold’s all-time high, Reuters released an article entitled “Banks race to raise gold price forecasts” in which all large financial institutions unanimously increased their gold price forecasts. Indeed, it was the day before gold peaked. The consensus was that gold could only go higher.
Can precious metals go lower from here? Yes, no doubt. But, we expect a sharp V-shaped recovery. We do not exclude to see dollar gold prices with 3 digits shortly, but we do not believe that will hold for a long time.
The investing problem is that almost every investor is looking away from precious metals at this point. As a matter of fact, it is only a handful investors that are turning their attention to the metals. The ongoing sell off is setting up for an extremely interesting buying opportunity as metals and miners are unrealistically priced. So the number of investors that will benefit from this selloff will be, as usualy, very small.
This is the perfect environment for shopping with large discounts, something contrarian investors are waiting for.