The last rally in precious metals prices and related stocks resulted in overbought condition. Nearly all charts, based on the COT reports, show bullish extremes:
Sentiment index shows over-optimism:
Big speculators, called Managed Money Managers, are holding one of the highest net long position in gold futures:
Silver shows similar patterns. For example, big speculators hold the highest net long position in silver futures in history:
Summarizing - in the short-term red warnings lights are flashing over the precious metals market.
However, in the long-term it may look different.
Let us look at the year 2005, when gold was in its initial phase of a bull market:
The green area marks the periods of over-optimism. Since the beginning of August 2005 speculators have been holding the highest net long positions in gold futures. Despite this fact, gold prices went up from $437 to $526 per ounce (an increase of 20.4%). What happened then?
The chart below shows it:
Well, gold went up from $526 to $710 per ounce in the middle of 2006 and then, after a serious correction, went through the roof.
I would say that the short-term conditions should not overshadow the big picture.