“Biggest Buy Signal for Gold Since 2001”?

Yesterday we talked about the bottoming in sentiment playing out right now in gold and silver.  Today we present another couple of sentiment based indicators to add to the weight of that presented yesterday.

Firstly, Casey Research ran an article this week titled “Is This the Biggest Buy Signal for Gold Since 2001?”.  In it they talk about Vanguard, one of the world’s biggest money managers with $5 trillion in assets under management, recently dropping ‘Precious Metals’ from their Vanguard Precious Metals and Mining Fund (VGPMX) to become the Vanguard Global Capital Cycles Fund.  Furthermore they are taking their holdings in this fund from 80% mining shares to just 25%.

Whilst that looks bad, just like the sentiment data we shared yesterday, it could actually signal the magical ‘capitulation’ of the market.  Vanguard ultimately needs customers.  Customers don’t like the sorts of losses this fund has delivered since gold commenced it’s bear market in 2011.  For Vanguard it may well simply be a move to retain customers as much as it is a view on the precious metals markets.  To demonstrate this fact you need only look back to May of 2001 when they did exactly the same thing when they dropped the word ‘Gold’ from their Precious Metals Fund amid equally awful market sentiment for gold.  Not even a month afterward, gold commenced a bull run that saw it rise 615% in 10 years.

As we have covered numerous times in the last few weeks, Casey also talked to the setup on COMEX, to wit:

“As of August 14, non-commercial traders—investors speculating on future price—were short (betting against) gold to the tune of 670 metric tonnes. According to market research team ANZ Research, that’s the biggest short position since the CFTC began collecting data in 1993.

Not only that, investors have a net short position for the first time since 2001. This means that the value of total short bets exceeds the total long (bullish) bets.”

The other piece of data we’ve come across is the US Conference Board Consumer Confidence Survey this week saw the highest measure of expectations since… wait for it… 2001!  Check out the correlation below between peak confidence and market crashes.  Irrational exuberance peaks before every crash.  Yet again, everything is clearly awesome! 

This is, on so many and varied levels, a contrarian investor’s dream.