Gold suffered through one its worst years in recent memory in 2013.
The yellow metal lost 28 percent of its value last year, its worst performance since 1981. Back then, the United States was recovering from one recession and then entered another one in the summer of 1981.
This period is commonly referred to as the Volcker Recession as Federal Reserve Chairman Paul Volcker thought the Fed needed to focus on inflation and not worry about interest rates.
The weak performance last year is not the reason I think gold is ready to rally. The oversold levels on the monthly chart are certainly part of the reason for my bullish outlook, but it is also the sentiment toward gold.
The Commitment of Traders report shows that large speculators are long a little more than 32,000 contracts and they have been long less than 50,000 contracts since mid-November.
While they are still net long, it has been a long time since we have seen such low levels of optimism toward gold.
While I believe the Commitment of Traders reports are among the truest sentiment indicators you can get, there are other sentiment indicators that have to be considered.
One of those is the "headline" indicator. Looking at some recent headlines, there are many pundits who are predicting gold will continue to fall. I even saw one who predicted gold would fall to $600 an ounce.
When I see negativity such as this, I can't help but be contrarian.
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