Gold–Retail forex traders have bought aggressively into Gold declines versus the US Dollar (ticker: USDOLLAR), and a contrarian view of crowd sentiment warns against trying to catch falling knives.
Trade Implications – Gold: Last week we pointed out that retail traders were their most heavily net-long Gold since the pair bottomed in May of last year, and such one-sided sentiment warned against joining the crowd. And indeed, our Senior Market Strategist favors further downside in Gold prices—particularly if we break below $1535.
Our proprietary data shows that these positioning extremes can often occur at the major market bottom (or top), but the reversal is only clear in hindsight. Without a meaningful turn in sentiment, we target further lows—especially as there are currently 4.2 traders long gold for every one short.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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