Banking Sector Weakness, Silver Ratio Bullish for Gold Price

Gold hit its intra-day correction low prior to the start of U.S. trading on Friday, January 28, and then reversed upward. As we explained at the time, although Egypt's revolution was the catalyst for this directional change the gold market was primed for a reversal prior to this event. We noted, for example, that evidence in the form of the Commitments of Traders (

) data and the Market Vane survey indicated that sentiment in the gold market prior to the January 28 reversal was roughly the same as it had been in mid July of 2010 -- just prior to the start of a relentless 2.5-month advance that resulted in a $200/oz addition to the gold price. Market sentiment usually doesn't say much about future price direction, especially when considered in isolation. Sentiment generally just follows price, so it tends to be at its most useful as an indicator of future price direction in those cases where it doesn't mesh with the price action. Mismatches between price-action and sentiment -- for example, when sentiment becomes very negative even though the price action is positive or neutral -- aren't common, but when they do happen they are regularly followed by price moves in the opposite direction to the consensus expectation.

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