By Bruce Kamich
Readers of Real Money over the past 12 months should hopefully know my bullish stance on the "yellow metal" and mining names. Many of the more popular and recognizable mining names bottomed in the second half of 2015. We pointed out rising momentum readings and rising On-Balance-Volume lines signaling a shift to accumulation, or buying of shares. Meanwhile, a number of very prominent active and semi-retired investment professionals have gone on the record with their bullish position on gold, while many in the media have taken the other side.
Quietly, the metal started to rally ignoring a forecast from a major investment house calling for renewed weakness. Dollar strength and continued reports of global deflation were ignored, as gold prices surged higher. Market observers (reporters who can construct a good article but don't understand the discounting nature of markets) continued to trash the monetary "relic". How could a market rally in the face of bearish news? Reports about lopsided positions from the CFTC were also ignored as gold went on to be one of the best performing assets of 2016.
Some analysts changed their tune over the past eight months. There are more bulls on gold now compared to the beginning of 2016. At least two questions need to be posed and maybe be answered. One -- are there too many bulls on gold now and has this become a crowded trade? Two -- analysts may have been recommending gold and mining shares, but have people actually acted on that advice? Talk is cheap.
One of the skills, dare I say, that I have honed over the past 43 years of working on Wall Street, is that I can sometimes recognize when the public is too involved and that a market is indeed overheated. One sign is when stories about gold move from the last page of the C section in the Wall Street Journal to the first page. Another sign is when analysts leap-frog forecasts -- one calls for a target of $1375, then another says we are going to $1400 and yet another pounds the table for $1500. Remember the calls for higher and higher crude oil prices when it was surging towards $150 per barrel?
Still another sign is when retail investors or their financial advisers (aka brokers) call in or email an analyst for a recommendation. Typically, very few people will buy a security when it is uncomfortable (gold trading below $1000), but they get their nerve up when it is well off the lows and pulling the trigger is easier because the news now fits the price action.