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Sentiment towards metals is extremely important this week after the downtrend in the precious metals finally came to a pause last week and prices started to sharply reverse. Now is a great time to check out how traders feel about some of the major three metals, as they look for contrarian trading signals via sentiment readings.
Trading sentiment is most effective when retail traders are running counter trend, meaning that they are heavily leaning against established market trends and in increasingly large numbers. Additionally, once big sentiment skews build it can be a powerful sign that the retail crowd are being too one-sided.
Typically, market sentiment readings for an instrument that has reached around 75 to 80 percent is considered to be at an extreme level, while market sentiment readings over 80 to 95 percent is often a strong indication that the trade could be topping or about to reverse at any time.
I will now look at some the strongest sentiment bias amongst the retail crowd right now. Some of the sentiment skews suggest that current price trends in FX, stocks, and precious metals are breaking point and big moves may be nearing.
GOLD – New Trend
According to the ActivTrader Market Sentiment tool the majority of traders are still quite bullish towards the price of gold, which comes as no surprise considering last week’s epic price run towards the $1,770 area.
The ActivTrader Market Sentiment tool shows that 63 percent of traders are expecting more upside in the yellow metal. Given that the bullish bias is not too extreme it is not impossible for gold prices to head higher.
It should be noted that sentiment is very important for metals. If sentiment turned negative it could seriously accelerate the upside in gold.
Copper – More Upside
The ActivTrader market sentiment tool shows that 55 percent of traders are bullish towards the price of copper after the recent $50.00 price ramp. Copper had seen a constant one-way theme of bearishness over recent months.
The recent policy breakout in gold and silver prices bode well for copper prices. I also think that the Fed being less bullish could be seen as a major price positive for the red metal.
I think we are not yet at the end of the down move in medium-term horizon given the state of the global economy. However, in the short-term we could certainly expect a push towards $380.00 or even $400.00.
Silver – Sentiment Turns
Market sentiment is still very bullish towards the price silver, which is not very surprising if we consider that a near $2.00 price has occurred over recent days.
The ActivTrader market sentiment tool showing that some 83 percent of traders currently bullish towards the silver, which is probably meaning that retail is starting to experience less pain than recently.
I think it is worth noting that the sentiment bias has dropped recent by around 10 percent. If this was to continue we could recently expect less positive sentiment to support the price of silver higher.
