A Long-term Bearish Signal Emerges for Gold

WELL…..ITS ALL OVER FOR GOLD

“When a barber offers you stock advice, then remember the markets are overvalued.” – Attributed [mine]

Apparently, punters are lining up at Martin Place to get their hands on the magic metal.

The snip below is from NewsCorp, which sits behind a paywall, but you can get the general gist from the headline. The cynic in me suggests that if anything heralds the end of a move, it is the general public getting involved.

The Crowd Always Arrives Last

Widespread enthusiasm is often a sign that a market’s best days are behind it. When public attention turns intense — when casual conversations start revolving around gold, property, or the latest index high — it can suggest that the underlying trend has matured. The excitement itself becomes data, and sentiment turns into a kind of late-cycle indicator.

Ordinary investors are often late to the move because they require a high level of confirmation before taking action. Humans are herd animals, we feel better when those around us support our opinion or actions. Rising prices offer reassurance that others have already profited, creating the illusion of safety. But by the time that comfort is widespread, the risk-reward balance has usually shifted. What once represented an opportunity has become an example of mania.

When the Headlines Cheer, Assume The Crash Position

Financial history provides many examples of sentiment reaching an extreme just as markets turned.

In August 1979, BusinessWeek declared “The Death of Equities”, capturing the prevailing gloom near the exact bottom of a long bear market. Within a few years, equities began a two-decade-long bull run.

In late 1999, the Wall Street Journal and Time celebrated the “New Economy.” Months later, the Nasdaq peaked and fell sharply.

In January 1980, as investors queued to buy physical gold and newspaper columns discussed “the new era of inflation hedges,” the gold price reached its peak for decades.

In 1999, The Economist proclaimed we were Drowning in Oil just before the beginning of a massive bull run in oil.

In March 2009, during the peak of the Financial Crisis, Time Magazine ran a piece titled Holding on for Dear Life – the market bottomed the same day.

These examples illustrate how media coverage frequently reflects the prevailing mood, rather than predicting future outcomes. When optimism dominates the front page, it is usually because the buying has already been done.

These examples illustrate how media coverage frequently reflects the prevailing mood, rather than predicting future outcomes. When optimism dominates the front page, it is usually because the buying has already been done.

Why the Public is Late

Behavioural biases explain much of this pattern. Herd behaviour drives individuals to follow what appears successful, while recency bias makes recent trends seem more enduring than they are. In combination, these biases encourage investors to join in only after sustained rises.

Professional Traders, by contrast, typically act on process rather than emotion. They have pre-defined rules for trimming positions, rebalancing portfolios, and managing exposure. The result is that they begin reducing risk in public strength, while retail investors are still increasing it.

For the professional trader, the breakout point was $2,000, not $4,000

Sentiment as a Signal

For systematic traders, public sentiment is a useful contextual measure. It doesn’t specify a timing point, but it highlights when optimism is fully priced in. When enthusiasm becomes universal, marginal demand is exhausted.

The next time a market captures widespread attention, it’s worth pausing to ask: who’s left to buy? The answer often signals where we stand in the cycle — not at the beginning, but near the end.

Author: Chris Tate

Source: Tradinggame.com.au