Gold: What You Can Learn from Speculators' Mistakes

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 August 2015 Elliiott Wave Financial Forecast:

As the chart shows, Large Speculators and Commercials hold a net-position size that is a multi-year extreme, and it is opposite to the position size held several weeks prior to gold's all-time high at $1921.50 in September 2011 and at gold's peak in October 2012... a sentiment that is consistent with a gold rally. Despite the possibility of near-term base-building, we still anticipate that the advance, when it starts, will last several months.

Indeed, in December 2015, gold hit a low of $1046.20 and then rallied to $1375.53 on July 6, 2016, a 31% increase.

A reversal followed which sent the price of gold to a Dec. 15, 2016 low of $1122.98.

At that time, as you might have guessed, sentiment had again turned decidedly bearish.

Here's a Dec. 29, 2016 Marketwatch headline:

2017 is the year gold drops below $1,000

Instead, however, gold started another climb. By Jan. 25, 2018, the price hit $1366.38, and the Daily Sentiment reading from trade-futures.com registered 91% bullish.

But, yet again, most big players were on the wrong side as gold began another slide.

This brings is up to Friday, Aug. 17, when gold's price hit $1184.11.

After the market closed on that date, our U.S. Short Term Update said:

Note the single-digit Daily Sentiment reading (trade-futures.com) that has attended this week's lows in gold (6%) and silver (7%). In fact, last night's reading was the fourth consecutive day of sub-10% gold bulls.

Since few investors expect gold to rally, does that mean the price of the precious metal will skyrocket from here? Well, sentiment measures are highly useful, as we have shown. But they need to be combined with the Elliott wave model for pinpointing high-confidence junctures.

Our analysts spell it all out for you.