HOW GOLD INVESTORS HAVE ACCURATELY PICKED EVERY MARKET BOTTOM THUS FAR IN 2011
Earlier this year I posted an article about what I term "Phase 4 Investor Theory". To give the cliff notes version of the article: It basically states that when bull markets are reaching an intermediate to long-term top, a certain group of investors will appear and inevitably rotate their funds into the most speculative names. These are the investors you want to bet against, as they wrong more often than not. The full article is here.
Looking at the price movement in certain asset classes has always been one of my favorite methods of gauging investor sentiment. Inevitably at important turning points in the market, groups of investors will react to fear (or greed) in a certain way that informs the astute investor of the possibility that fear (or greed) has reached its apex and the market will soon reverse trend.
The most difficult part is identifying which asset class is attracting "Phase 4 Investors". It is constantly shifting with the times. The speculative stocks of one period are the conservative stocks of another.
In the current market environment gold and silver continue to attract the attention of speculative and conservative investor alike. The tech newsletters of the 90's have been replaced by newsletters focusing on gold and silver stocks. Investing in metals has become the trade of the global apocalyptic, Zerohedge obsessed, modern day investor.
It is only natural then that gold investors deploying their life boats would become a reliable indicator of market bottoms throughout 2011. Let's look at the examples from 2011 of gold selling coinciding with intermediate term market bottoms:
click chart to enlarge
SPY vs. GLD MARCH 2011
SPY vs. GLD JUNE 2011
SPY vs. GLD OCTOBER 2011
SPY vs. GLD CURRENT
