Time to sell more gold

A year and a half ago, we recommended investing up to 100% of one’s allocation in gold. In other words, regardless of the amount of money allocated to gold, now was the time to go to 100% of that allocation.

Then, in this article in early April, due to growing bullish sentiment, we recommended that investors lighten their gold investments to 70% of their allocation. We have provided a maximum price target of $2,450 based on gold rising to the upper end of its parallel trend channel. We have now reached and exceeded this price target.

The evidence strongly suggests that a medium-term correction in gold is even more imminent, so we now recommend going to 50% allocation. (We are not comfortable going 100% in cash as our long-term gold indicator is somewhat neutral and we are willing to wait and see how it develops).

We believe we will be able to buy back those gold positions at a lower price sometime next year. In this article, we’ll look at the same indicators we presented in April and show you where they stand today.

Gold has reached its price and time target

The chart below shows that gold has reached both the price and the time target that we have set.

These trend channels were drawn last April and that is why we initially set $2,450 as our price target. The trend top channel was at $2,450 at the time. The top channel has grown over the past five months, allowing for a slightly higher price, which we obviously achieved.

The two green boxes have equal time bases. They show that the current rally, which started in 2022, has now lasted about the same amount of time (two years) as the previous rally from 2018 to 2020.

Technically, the current two-year rally is now fully extended and a medium-term correction is warranted.

There are still too many “call” buys in GLD

The put-to-calls ratio is a great indicator of stock market sentiment. It is well known that when “too many” investors expect prices to rise, they generally fall and vice versa. This is very true for gold as well. By comparing how much money goes into GLD “calls” with GLD “puts,” we gain insight into whether investors expect GLD to go up or down.

The indicator below compares how much money goes into directional puts versus directional calls in GLD. If much more money is flowing into GLD calls compared to GLD puts, it means there is “too much” optimism and we can expect lower prices. We have that today, as this chart shows.

I have indicated with red arrows five times since 2018 when there was excessive optimism with large amounts of call buying. We call these extreme readings Red Zone readings.

As you can see, they almost always occurred at gold price peaks. Since April we have had almost continuous readings in the Red Zone, so there is still excessive bullish optimism for GLD. We think this is a strong check on the sentiment that gold’s two-year rally is coming to an end.

Gold advisors and newsletter writers are still too optimistic

The chart below shows the Sentiment King rankings of Hubert’s survey of gold advisors and newsletter writers. It’s been going since 2006.

Like all polls, it acts as an indicator of contrary opinion. When too many advisors and writers are bullish on gold, prices generally peak. I have indicated with the red arrows three times in the last 20 years when we have had this high level of bullish optimism about gold from newsletter writers.

Two took place and a major price; the most recent was in April and still exists today. Of course, there were a number of Red Zone readings from 2007-2009 that did not become major declines, but occurred at short- and medium-term peaks.

For us, this indicator also suggests that the current two-year gold bull market is coming to an end.

Our long-term gold indicator is neutral

The SK Gold Buyers Index, which is our long-term gold indicator, is derived from traders’ data commitment in gold futures contracts. We combine the amount of gold futures shorted by money managers and compare it to how much gold producers are buying.

The chart below shows this indicator through 2006. Green zone readings represent optimistic long-term outlooks, while red zone values ​​signal long-term caution.

You can see the two green zone buy signals that occurred at the end of 2022 and in October 2023. Well, we don’t have a red cell signal in this long-term indicator, it’s moving in that direction and we could get to him in the next three to six months. Until we do, we will maintain our long-term bullish stance, with the idea that any correction will be medium-term, lasting three to six months.

While the previous two indicators in this article point to caution in the short and medium term, we are very encouraged that this indicator continues to show that the long-term trend is positive. We believe that maintaining a gold position of 50% of the allocation is the correct recommendation in the face of these indicators and market conditions.