Extreme bearishness in gold creates bullish scenario for GLD

Key points 

• Trader sentiment for the SPDR Gold Shares (GLD) just touched an extreme level
• Following similar sentiment washouts, GLD has posted an 89% win rate over the subsequent 12 months, with median returns over 10% and a risk/reward profile that heavily favors the upside.
• GLD recently suffered a rapid ~18.5% drawdown from its 52-week highs. Historically, sell-offs this intense have been a reliable signal that an intermediate-term bottom is in.
• Gold miners are in a state of total capitulation. Internal breadth has evaporated with 95% of constituents now technically in a bear market (down 20%+ from highs). This magnitude of capitulation typically precedes robust mean-reversion rallies in the miners (GDX).

The Crowd is Fleeing Gold

Since the late 1970s, gold pundits have promoted the yellow metal as "a store of value" and a "hedge against uncertainty." Recently, however, escalating geopolitical events have injected severe volatility into gold pricing. The overarching market narrative suggests that prolonged conflict raises the probability of an inflationary rebound, which in turn could force interest rates higher. Higher real rates historically act as a headwind for non-yielding assets like gold. Furthermore, history shows that on many occasions when stocks and/or bonds have experienced turmoil, gold either did very l