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This is what gold bugs want to hear
By Mark Hulbert | March 14, 2017

Buying opportunity looks promising — but not quite yet

Sentiment conditions in the gold market have improved markedly over the last three weeks.

What’s required for contrarian-minded investors to trigger a “buy” signal is for even more gold timers to throw in the towel. A good number have already, which is why contrarians are beginning to take notice of gold GCJ7, +2.58% .

Consider the average recommended gold market exposure level among several dozen short-term gold timers that I monitor on a daily basis (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at minus 14.7%, which means that short-term gold timers on average are allocating about a seventh of their gold portfolios to going short.

To put that in context, as recently as Feb. 23 the HGNSI stood at +41.3%. So in less than three weeks’ time, the average gold timer has reduced his recommended exposure level by 56 percentage points. Contrarians find it encouraging whenever bullishness plummets so much in such a short period of time.



Why then have contrarians not yet issued a gold buy signal? The answer is evident from the above chart: The HGNSI’s cycle lows in recent years have occurred at even lower levels—below minus 30%, in fact.

So even though we are a lot closer to a contrarian buy signal than we were a couple of weeks ago, we’re not there yet. Don’t jump the gun, and instead just wait for the markets to tell their story. If more and more gold timers throw in the towel in coming days, then you can start holding your breath for a contrarian buy signal.

Some eager-beaver gold investors have contacted me recently to inquire about another gold sentiment indicator, which is based on the relative performance of gold-mining shares and bullion itself. Though not all followers interpret this indicator in the same way, many believe that gold-mining stocks are more susceptible to investor sentiment than the metal itself.

I’m not convinced that gold-mining shares’ relative strength tells you anything. At least that’s what I concluded upon plugging into my PC’s statistical package a decade’s worth of data for bullion and gold shares. I found that gold-mining stocks’ relative strength was unable to forecast gold’s near-term movements, regardless of whether I was measuring relative strength or subsequent performance over a month, a quarter, or a six-month period.

Which brings me back to my original conclusion: Close as we may be getting to a contrarian-based gold buy signal, we’re not there yet.

http://www.marketwatch.com/story/this-is-what-gold-bugs-want-to-hear-2017-03-14

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