Sentiment is the attitude of the investing community towards the anticipated price action of a particular security. For instance, if the investing community thinks that the price of the S&P 500 will go higher, sentiment is said to be bullish. There are various ways to monitor the sentiment of the market and these tools become very important, when used in conjunction with other market indicators, to determine important trend changes. Due to herd mentality (Psychology 101 will have to wait for another time), at important market peaks the overwhelming majority of investors have the same exact thought – that prices will go higher. It is at these moments that prices are most vulnerable because there are no buyers left. I think gold might have reached such a condition in December.
We have been noticing in the pit for awhile now the increasing amount of commercials about buying gold. No doubt you have seen at least 5 companies broadcast to the world that they want to buy your gold. We even saw an actor from the movie Good Will Hunting in one of the commercials. Gold’s surge in price has certainly attracted interest and there is a huge amount conviction among investors that this price appreciation will continue. Jack Crooks from Black Swan Capital provided us with some anecdotal evidence that the majority of the attendees believed this to be true during a recent currency conference. In this light, it is understandable that gold moved lower over the last two months.
At Pinnacle, we've invested in gold for a variety of reasons including but not limited to hedging sovereign risk, hedging currency concerns, and future inflation concerns. We also believe gold will be an outright performer during this cycle, and therefore deserves more than the hedge label. So even though we cringe a little at the sight of gold commercials we continue to view the recent decline as a price correction in a long-term bull trend. However, we will be closely monitoring important support levels to ensure we are not trampled by the herd as well.
