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Waning Gold Interest and Market Euphoria Bode Well for the Fear Trade

Gold Downside

As if CNN couldn’t figure out why their own reporting is so laden with bull***t, here’s the latest “bull” demonstrating how an imbecile might interpret every “bull” market at its zenith:

“CNNMoney’s own Fear & Greed Index, which looks at seven measures of market sentiment, is showing signs of Greed. That doesn’t bode well for gold.”

Let’s rephrase this: “the markets are showing signs of greed, possibly euphoria…that doesn’t bode well for anyone who is bearish about the market.” And so, investors continue following this line of thought until the entire herd falls down the cliff.

And you tell yourself, “well when things were going up, nothing seemed like it would go down.” Sounds intelligent, right? Well, without trying to sound too sarcastic (which the author is), that’s essentially what CNNMoney is telling you.

And that’s exactly what most equity investors seem to believe, which is one of the reasons why the “fear trade” has been sinking: nobody is afraid! Remember last December how everyone and their grandma was talking about Bitcoin? People were so afraid that to miss out on the bull run that they became blind to the possibility that Bitcoin was in a bubble.

We are seeing this in equities. And for gold investors, this is very good news.

How Bear Markets Announce Themselves: Very Quietly

If you take a look at all of the S&P 500 bears since 1926 (and there were around eleven of them), you will note one key characteristic: none of them ever began with a massive crash. Bears don’t kick off with a bang.

Instead, bear markets begin with a long and drawn-out slowing of momentum. First, the top begins with a failure to exceed its highs. And then, things start to round off a bit. Finally, the first leg of the bear–its initial lunge–takes place. But that’s not the big move. The final and most dramatic plunge takes place toward the end of the bear.

Right now, we’re not quite seeing that potential “rounding-off” phase of the stock market. But we are seeing that last phase of the gold bear coupled with stock market euphoria. It looks as if most investors are willing to play chicken with the markets. Some may get away with it. But as for most, well…

What’s Going On WIth Gold?

Let’s look at the more commonly traded ETF space. The iShares Gold Trust (IAU) and SPDR Gold Shares ETF (GLD) are at their 52-week lows; down more than 6% for the year. Even worse is the VanEck Vectors Gold Miners ETF (GDX) whose decline is closer to 10%.

In other words, people are dumping their gold exposure. Why? There is no fear in the markets. And no fear means no “fear trade.”

Let’s heed the words of one of the world’s most successful investors, Sir John Templeton:

“Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

Now ask yourself this: are we on the cusp of euphoria in equities, and perhaps absolute pessimism in precious metals?

This is a question that only you can answer. But it is an important question, as it may mark the difference between getting into the eventual bull run in gold or missing out on it altogether.

Do you value sound money, or do you value even more the speculative fervor of the crowd? Is it really different this time–that the equity markets will just keep going up and up and up without end like it did toward 2000 and 2008 and every preceding bull market–or do you believe that all markets eventually tumble and that all fallen markets that present real value eventually rise?

In other words, do you believe in strategically getting into the “right” market at the right time, preserving your capital in one market and pursuing real growth in the other? Or do you believe in following the crowds, which often follow the hype and recommendations of the financial institutions that ultimately benefit from the crowds with very little to no risk (to them, at least)?

Again, think twice about these questions. For you may miss out on an ideal opportunity for both high growth and capital preservation.

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