Has gold already fallen into the "golden pit"? Institutions: Market sentiment is close to extreme levels, and a high probability rebound opportunity has emerged.
As Middle East conflicts continue to disturb global markets, gold prices have recently seen a significant pullback. However, some institutions believe that market sentiment has reached near-extreme levels, which in turn provides conditions for a rebound in the future.
Data shows that since the outbreak of the Iran conflict, gold and related assets have been under pressure. Spot gold has declined about 13% this month and is on track to record its worst monthly performance since October 2008. Meanwhile, the SPDR Gold Shares (GLD.US) ETF, which tracks gold prices, has dropped about 14.6% this month, while the VanEck Gold Miners ETF (GDX.US), reflecting the performance of gold mining stocks, has fallen by approximately 25%.
Despite weak short-term performance, SentimenTrader analysts pointed out that market sentiment has entered the "extremely pessimistic" range. Historical evidence shows that this is often a precursor to a rebound. Data indicates that when over 80% of traders in the GLD-related markets hold a pessimistic outlook for two consecutive weeks, the probability of a gold rebound in the next 12 months is as high as 89%, with a median return of more than 10%.
From an industry structure perspective, the sell-off in gold mining stocks is also evident. A month ago, the proportion of stocks in a technical bear market was still low, but now this ratio has risen to about 95%, indicating a clear "exhaustion" in market breadth. Analysts believe that this combination of "sharp price compression + extremely pessimistic market sentiment" typically corresponds to classic contrarian investment opportunities.
Recently, gold prices have retreated about 18.5% from their 52-week high, with volatility intensifying under the dual effects of geopolitical risks and changing interest rate expectations. As some funds are passively unwound and "weak investors" are gradually washed out of the market, the market structure is becoming more stable.
SentimenTrader believes that in the current context, gold now presents "high-probability, asymmetric return" allocation value. Especially while GLD remains above its 200-day moving average, the appeal of establishing long positions in the next 3 to 12 months is rising.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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