As precious metals were pummeled again this week, all sentiment measures that I look at hit their lowest levels this decade. One indicator, the Daily Sentiment Index, hit a level seen only twice before, and not at all since 1993.

I, for one, don't really see how the mood for the metals and miners could get much worse, but that does not mean it has to turn around immediately. The mood will change when it changes, but when it does, it will precipitate big moves.

Part of the reason folks don't think they need precious metals is the belief in the Goldilocks thesis, which has at its root the notion that the economy is getting stronger. An extension of that is the suggestion -- once again -- that the Federal Reserve is going to cease its money printing early and thus head off inflation.

On Wednesday, we saw more angst along those lines, as the tape was all a-jitter over fears that the Federal Open Market Committee minutes were going to show some sort of a tremendously hawkish bent on the part of the monetary doves that run the Fed. The news that some Fed heads might want to "vary" the pace of quantitative easing is reminiscent of last year (see below), when some were incorrectly musing about actual Fed exit strategies.

I cannot believe anyone could possibly give any credence to that thought process. But over the past four years, there have been several periods when people didn't understand what was occurring or how our warped financial system actually works. (I say that because if they did, they would not be looking for early exits based on misplaced visions of economic strength or a lack of understanding about the Fed itself and its money printing.)

How soon we forget

Remember, it was just last year -- thanks to warm winter weather and inaccurate seasonal adjustment factors -- that folks were breathing hot and heavy about the Fed not only turning off the spigot of easy money, but draining the reserves. Instead, by the summer and fall, we had a third and then a fourth round of quantitative easing.

Currently, we don't even have any of the particularly strong economic data that we had early last year. We do know that the average consumer is being hit with increased taxes, yet folks seem to think the economy will get better simply because the stock market is rallying. In fact, the rally is happening because the Fed is printing money, not strong economic fundamentals.

The fact that we continue to have this fear of a "responsible" Fed despite its actions over the past two decades is as mind-boggling to me as looking at the level of short-term interest rates. The Fed has done nothing but ruin the economy and financial system, and it has been wrong in its assessments at every juncture. Yet people still take the Fed as seriously as if it had been dead right and extremely responsible. And clearly, no one fears the Fed more than the metals markets.

Look what the CAT dragged in

Stock bulls did lose some of their bravado Wednesday, thanks to Fed jitters and Caterpillar's (CAT) announcement that the machine sales slowdown it had been seeing was accelerating, led by Asia. That is just another recent data point about the global economy not being all that great.

However, in general, people continue to be rewarded for being wrong over and over again, which is rightfully maddening to those who are prudent and understand that the policies of the Fed and other central banks are terrible for all of us. Regrettably, the masses are not thinking along those lines, are sadly delusional and are once again going to take enormous losses at some point.

Worth your while

I had wide-ranging conversation regarding gold and crowd psychology with Mariusz Skonieczny, who has a wonderful value-oriented website. Interested readers should definitely check it out. You can listen to the interview here.

At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column. He was long gold.