Gold: This "Contrarian" Indicator Jumps to 3-Year High

Hedge fund managers are considered to be among the smartest people on Wall Street.

Ironically, as a group, they're notorious for consistently being on the wrong side of major turns in the markets they trade. By contrast, a group of insiders called Commercials are generally on the right side of major market turns.

With that in mind, consider this chart and commentary from the July 15 U.S. Short Term Update [wave labels available to subscribers]:

Large Speculators in gold futures are net-long 274,555 contracts, nearly matching their total two weeks of 294.823 contracts. The total net-long position is the highest since July 2016, as shown by the dashed lines and arrows on the chart.

As the Wall Street Journal recently noted (June 25):

Gold Rally Picks Up Steam as Investors Pile In

The price of gold is rising at the quickest pace in years

Does this all add up to a strong contrarian signal that gold's price will immediately start to decline?

Not necessarily.

Yes, extremes in sentiment do provide valuable insight into a market, but they generally do not provide precision in pinpointing turns.

In other words, an investor needs to combine the message of sentiment extremes with the Elliott wave model in order to have the best chance of nailing high-confidence junctures.

Indeed, the July 15 U.S. Short Term Update also notes:

The rally pattern is not complete but is mature.

Of course, when our analyst mentions "pattern," the reference is to the Elliiott wave model.This suggests that Speculators' optimism toward gold could grow even stronger before a turn.

Our analyst goes on to provide the Elliott wave details and price targets for gold.

Read our forecast for yourself without any obligation. Look below for the details of our risk-free trial.