Gold Prices Could Be Presenting a Great Opportunity as Gold Becomes Most-Hated Asset
If you have even a slight contrarian in you, then don’t ignore gold prices. The yellow precious metal could be presenting an opportunity like it did back in 2001–2002.
You see, gold has officially become one of the most hated assets these days.
Consider that according to the data from the U.S. Commodity Futures Trading Commission (CFTC), large speculators (such as hedge funds) have turned net short on gold for the first time since 2001. That means they are betting that gold prices will decline. (Source: “Negative bets against gold surge, could be tipping point,” CNBC, August 20, 2018.)
How pessimistic are they? Speculators had 215,000 of futures contracts betting against gold prices. Each contract is 100 ounces of gold. So, they were short on about 21.5 million ounces, or $25.8 billion worth, of gold.
Looking at just the number of futures contracts, the last time speculators were this pessimistic was in 2015. Remember what happened at the end of 2015?
Looking at this, one has to keep one old investing adage in mind: Buy when there’s blood in the street. The idea behind this old saying is very simple: you buy when no one else wants to buy and everyone is running away..
Speculators turning net short on gold and building up such big short positions is like blood in the street in the gold market.
What’s Next?
Dear reader, I believe what we see happening is very interesting.
First of all, the gold market turning net short is hands down one of the greatest signals for contrarian investors. It is saying that gold prices may have bottomed and the yellow precious metal could really be worth a look.
Also, know that the last time we saw net short positions build up in the gold market was in 2001. If you are a gold bug and have been following gold prices for a while, then you’d know how great of an opportunity gold was back then. It could be presenting a similar opportunity again.
Lastly, deep-pocketed speculators are turning pessimistic at a time when the gold market is facing a disparity in favor of higher gold prices. We see demand remaining strong, but the supply side is facing a lot of headwinds. What happens if fundamentals suddenly start to matter?
Gold Prices Outlook: The Returns Could Get a Lot Sweeter
In 2001, gold prices were trading around $275.00 an ounce. In the next 10 years, we saw the yellow precious metal soar over $1,900. This represented an increase of 590%.
If one says gold is presenting a similar opportunity as it did in 2001, and if we assume we see a 590% move, we could be looking at gold prices at above $7,000 an ounce.
I know that $7,000-an-ounce is a hard figure to digest for many, but gold prices of $1,900 in 2001 were also very hard to digest.
If we just assume we see a 200% move in gold prices, we could be looking at gold prices of $2,400.
With all that in mind, I can’t stress this enough: Don’t ignore gold prices. The yellow precious metal could be presenting the opportunity of a lifetime. The returns could get a lot sweeter in the coming years.