Signposts: Gold Is At, Or Near, A Cyclical Bottom

As a contrarian investor I look to buy what is unloved and thus cheap, and sell what is popular and therefore expensive, and Signposts are coincident indicators that help me do this.

A good example of such a Signpost occurred on 7 May 1999 when then Chancellor Gordon Brown announced to the world that he would be selling more than half of Britain’s gold reserves. His decision came after a 20 year bear market in gold when the yellow metal was at $254 an ounce. The great contrarian investors of the time took notice and began buying gold, which today trades at $1,639 an ounce.

While not quite so momentous, the Signpost I encountered yesterday still struck me as significant. I was talking to a very well respected veteran of the markets who heads up a European brokerage firm. And it’s because he’s so well connected that his comment struck me as being a definite Signpost.

He and I were discussing some ideas for an article he wants me to write, and as soon as I suggested an article on gold he interrupted, “People aren’t interested in gold right now.” That was it, end of topic, and we moved on to other ideas.

To me this was a clear sign, and it tallies with my view that sentiment in the gold sector is now extremely negative, which is exactly what you wan to see when you’re entering a market that is in a secular uptrend. It tells you that you are at, or near, the cyclical bottom.

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