“It looks as if bulls of the precious metals are throwing in the towel – although this could prove to be a contrarian buying opportunity if inflation starts to surprise on the upside in 2018 and gold and silver retain their status as a store of value.
“The launch of Bitcoin futures has stirred additional interest in the cryptocurrency and potentially sucked money away from gold and silver, where the bullish or bearish nature of sentiment can also be tracked via the futures markets.
“It is possible to look at the so-called commitments of traders on a weekly basis, to look at whether traders of gold and silver are bullish or bearish, via their futures positions.
“The number of so-called ‘long’ contracts taken out by traders who think gold is going to rise in price in future has collapsed and the degree to which it outweighs the number of those ‘short’ contracts acquired by those who think it will fall is shrinking rapidly. This suggests that sentiment toward gold may be getting close to being washed out.
Source: Thomson Reuters Datastream
“A similar apparent capitulation can be seen in silver, too.
Source: Thomson Reuters Datastream
“This is something which may interest contrarians who still feel the precious metal has a role to play in a balanced portfolio, especially if inflation starts to move higher, given the slow rate at which supply grows and its historic status as a store of value (both facets which are playing a role in Bitcoin’s surge to fame).
“That said, some investors will be entirely unmoved by either metal given their lack of a yield and particularly gold, given its limited industrial use.
“This absence of a yield or any cash-generation is also a case against Bitcoin, although at least fans of gold and silver have the option of looking to gold and silver miners, either directly through quoted stocks, or through active or passive funds which specialise in large- or small-cap diggers, some of whom do pay a dividend and turn metal into cash flow.”