It’s time to be a contrarian on gold. We should be in the final few days of the yearly cycle low. I call it the bloodbath phase. They tend to last on average 5-7 days. This is where price breaks lower and just keeps going down and down into deeply oversold territory. Longs that were hoping the first down day (Friday) would be quickly reversed finally panic and sell right before the final bottom. Sentiment reaches bearish extremes. These are the conditions that generate the fuel for the next intermediate rally.
So here we are again. Everyone has turned 180 degrees from their bullish posture back on April 11 when gold tagged $1370. At that point all traders could see was blue sky ahead. Now there’s nothing but doom and gloom. We sold our metal positions on April 12th when everyone else was bullish. Now I’m ready to buy buy buy when everyone else can see nothing but lower prices ahead.
We probably won’t time it perfectly. Contrarian trades are almost impossible to time perfectly but you really don’t need to time perfect entries to make money being a contrarian. You just have to get “close enough”. Sometime over the next 3-4 months the black pessimism we are seeing now will reverse and we’ll see that “nothing but blue skies ahead” sentiment return.
Note the extreme oversold condition of the TSI and RSI. RSI is at 9. Sentiment should be well under 20% bulls today. We are on day 5 of the bloodbath phase. One couldn’t get a better buying opportunity, but I guarantee there will be lots and lots of dumb money selling into an RSI reading of 9 instead of buying like they should.