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Sentiment towards metals is extremely important this week after the downtrend in the precious metals broke down to fresh low and prices started to drop sharply. 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 – Bear Trend
According to the ActivTrader Market Sentiment tool the majority of traders are still quite bullish towards the price of gold, which comes as a surprise considering this and last week’s epic price drop to new lows.
The ActivTrader Market Sentiment tool shows that 635percent 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 and when sentiment turned negative it could seriously accelerate the upside in gold.
Copper – More Downside
The ActivTrader market sentiment tool shows that 51 percent of traders are bullish towards the price of copper after the recent $20.00 price drop. Copper had seen a constant one-way theme of bearishness over recent months.
The recent policy breakout in gold and silver prices bode ill for copper prices. I also think that the Fed being more hawkish could be seen as a major price negative 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. With this is mind we should probably expect more losses. Sentiment doesn’t reveal much at present.
Silver – Price Diversion
Market sentiment is still very bullish towards the price silver, which is not very surprising if we consider that silver prices are holding up well.
The ActivTrader market sentiment tool showing that some 82 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 remained the same for many months, which certainly makes me suspicious that we might need to see a major price drop at some point.
