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Precious Metals Sentiment

  • Written by Syndicated Publisher No Comments Comments
    October 12, 2013

    One of the best sentiment gauges for precious metals is whether investors are paying a premium, or if they are buying precious metals at a discount. How do we determine this?

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    (This is an excerpt from recent blogs for Decision Point subscribers.)

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    Central Fund of Canada (CEF) is a closed-end mutual fund that owns gold and silver exclusively — the metals, not stocks — at a ratio of about 45 oz. of silver to 1 oz. of gold. Closed-end funds trade based upon the bid and ask, without regard to their net asset value (NAV). Because of this, they can trade at a price that is at a premium or discount to their NAV. By tracking the premium or discount we can get an idea of bullish or bearish sentiment regarding precious metals.

    Very recently CEF has been selling at about a -7.5% discount to the net asset value of the gold and silver it owns. Considering that CEF has experienced a -54% decline from its 2011 top, that is a remarkably small discount when compared historical discounts of -15% to -20%. Even more remarkable it the fact that after the -50% CEF correction in 2008, CEF was still selling at about a +15% premium!

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    Conclusion:  Obviously precious metals sentiment is somewhat bearish, but not so much so that we can detect a buying opportunity based upon it.

    Images: Flickr (licence attribution)

    About The Author – Carl Swenlin, Decision Point

    Carl SwenlinCarl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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