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Sentiment towards the precious metals is changing following the ongoing debt ceiling debacle in the United States. Now is a great time to check out some of the most extreme sentiment traders looking 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 are built it can be a powerful sign that the retail crowd is 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 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 – Continued downside
According to the ActivTrader Market Sentiment tool we are seeing sentiment remaining bearish towards Gold, which alludes to further price gains in the short-term. However, the price action currently disagrees.
The ActivTrader Market Sentiment tool shows that only 38 percent of traders are expecting more upside in the yellow metal right now. This is no real increase in negative sentiment from the previous week.
It should be noted that sentiment is currently in the worsening phase and retail is currently on the wrong side of the trade. Sentiment is very crucial for the price of gold as we typically look to fade extreme sentiment biases.
Silver – Down mode
The ActivTrader market sentiment tool shows that 86 percent of traders are bullish towards silver right now as the metal continues to move higher on the precious metals market.
Decreasing bullish sentiment bias is good for continued price gains, but that is not happening right now, and it certainly alludes to more downside trading eventually, however, it is important to state that the shiny metal is bearish technically.
I think we are about to see more losses in the price of silver in the near-term, however, the long-term trend change probably only happens above 28.00.
Copper – Selling Pressure
Market sentiment towards copper is slightly bullish, which is a slightly bearish sign for the metal in the short-term, as this means the majority is usually wrong.
The ActivTrader market sentiment tool showing that 56 percent of traders currently bullish towards the popular gauge of global demand. Sentiment was over 60 percent bullish at the start of last month.
I think it is worth noting that major negative sentiment is a solid contrarian indicator for more upside. Currently the short-term pressure is on copper.
