This Sentiment Indicator Always Works
When to Buy Gold Stocks
A few months ago we looked at the three stages of market sentiment. After all, if you pay close attention to sentiment, you can significantly increase your upside potential and reduce your risk. Youll achieve that by focusing on the micro-cycles within the long-run bull cycles.
Just like in the long-run gold bull market, there are three stages in the shorter cycles as well. For instance, back in July we identified how the temporary dip in gold stocks was a great time to buy as gold was entering the three stages.
From July 10 2009:
Stage 1: We went through the first stage about a month ago. At the time gold was in all the headlines, hedge fund manager John Paulson was buying gold, his move made gold cool again. Gold was hot and a this will be the last opportunity to buy gold stocks mentality was taking hold. As usual, the euphoria didnt last.
Stage 2: This is the period when commentators start focusing on the long-term case for gold. They start saying things like gold is going to take a while and if youre going to buy gold, you better be in for the long term. We looked at gold the same way, but we were doing it throughout the first stage and looked into how Paulsons trades, although very profitable, usually take a couple of years to play out.
Stage 3: This is when Gold stocks fall out of favor, deflation fears dominate, and Wall Street moves onto another hot sector. And its the third stage which is the time to buy.
September 29, 2009:
Stage 1: Earlier this month gold climbed past $1,000 an ounce and kept going. There was a real urgency to buying gold before it runs much, much higher. The herd was chasing after it. Goldseek.com, one of the most popular gold web sites in the world, set a new traffic record.
Stage 2: All signs point to us being in the latter parts of the second stage. Most pundits have calmed down a bit and started focusing on the long-term and the fundamentals for gold (which we always try to do), gold prices have corrected, and there are even a few analysts advising to get out of gold.
For example, the National Bank of Canada, which has been bullish on gold since 2005, has recently changed course on gold earlier this week. The National Banks Matthieu Arseneu said, In our opinion, all the factors that contributed to the recent upswing in the price of gold are set to reverse.
This type of call (from a major bank no less) does not happen in the euphoric Stage 1.
Stage 3: Golds out of favor. There are no more headlines. Wall Street has moved on. Right now, with your editor on Fox Business to talk about gold, were not quite in this stage yet. But its not far away.
Finding good entry points and tracking sentiment are just part of the equation when investing in gold successfully. An equally big part is what stocks to buy.
by: Carly Walton
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