Investor Sentiment Beginning to Shift for Gold Bullion?

By Sasha Cekerevac

As everyone knows, gold bullion has had a significant sell-off over the past few months. Institutional investor sentiment has shifted dramatically, as funds have booked profits on their gold bullion investments.

However, it appears that there is still some life in gold bullion, because continued strong investor sentiment in the retail sector, especially the physical market, has helped to increase demand and support the price.

Part of the reason for the sell-off in gold bullion was the better-than-expected economic data and comments by the Federal Reserve that it’s beginning to look at possibly reducing its quantitative easing program if the economy improves.

However, recent data are showing signs that the economy is not accelerating. As an example, the U.S. Department of Commerce just released the second estimate of first-quarter gross domestic product (GDP), coming in at 2.4%, slightly below previous estimates of 2.5%. (Source: U.S. Bureau of Economic Analysis web site, accessed May 30, 2013.)

While this number is not bad, it is not very strong either, and it will give investor sentiment a pause regarding the probability that the Federal Reserve will begin reducing its asset purchase program anytime soon.

All eyes will be focused on this Friday, when the all-important jobs data will be released. The Federal Reserve has two mandates: price stability, which remains in check, and employment. Investor sentiment will shift and affect assets, such as gold bullion, based on how the underlying economy is functioning.

Take a look at the chart for the prices of spot gold featured below:

Chart courtesy of www.StockCharts.com

Technically, gold bullion appears to be attracting buyers. While investor sentiment dramatically shifted into negative territory with the breakdown of gold bullion below $1,550 an ounce, the latest consolidation period over the past few weeks has led to signs that much of the selling pressure has concluded.

The recent double bottom at $1,350 for gold bullion was met with higher levels of both the moving average convergence/divergence (MACD) and the relative strength index (RSI). This bullish divergence is certainly not foolproof, but it does indicate that selling momentum appears to be decreasing.

A sustained move by gold bullion above $1,400 should attract additional buyers, with $1,500 as the next test for investor sentiment. While, ultimately, the fundamentals do matter and we have to continue watching the economic data, these trigger points for gold bullion give us a roadmap of how investor sentiment is shifting among various price points.

A sustained break below $1,350 for gold bullion would most likely trigger stops by large investors, causing further selling pressure. The data do show that physical demand for gold bullion remains strong, even as many large institutional funds turned neutral or negative on gold bullion. We will have to see if there is enough demand at current price levels to absorb the supply that’s hitting the market. Additionally, the next employment data release will most likely cause significant volatility for gold bullion.

This article Investor Sentiment Beginning to Shift for Gold Bullion?  was originally published at Investment Contrarians