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Bull run for gold is pure fantasy
By Mark Hulbert | May 5, 2017

Sentiment to spur a decent gold rally does not yet exist

Sentiment conditions remain unfavorable for gold. That’s surprising, since gold has endured a terrible couple of weeks. Normally that would have been enough to convince gold market-timers to run to the bearish camp, and in the process create the sentiment foundation from which a subsequent rally could be built.

But clearly these aren’t normal times: The average gold timer I monitor has only begrudgingly reduced his recommended gold GCM7, +0.06% exposure level over the past two weeks. And over the last couple of days that average exposure level has actually crept back up.

On both counts, according to contrarian analysis, the foundation for a decent gold rally does not yet exist.

Consider the average recommended gold market exposure level among a subset of short-term gold timers I monitor on a daily basis (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at 19.2%. Though that’s lower than the 56.0% to which the HGNSI rose in mid-April, when gold was approaching the $1,300 level, it remains surprisingly high. The last time gold bullion was trading at more or less where it is today, in mid-March, the HGNSI stood at minus 12.0% — or 31 percentage points lower than where it is now.


That 31-percentage-point difference is a good measure of how much bullishness prevails currently among gold timers.



Particularly revealing is the gold timers’ behavior this week, which so far has witnessed a gold decline of almost $40. Yet the HGNSI today is 5.8 percentage points higher than where it ended last week. Since the typical pattern is for the gold timers’ recommended gold exposure level to fall in lockstep with the market, their unexpected optimism means they were viewing gold’s decline as a buying opportunity rather than the beginning of something major.

This behavior is more reminiscent of the so-called “slope of hope” that characterizes bear markets than of the “wall of worry” that bull markets like to climb.

These sentiment developments would be a cause for concern at any time, but you may want to pay even closer attention now. That’s because the gold market appears to be following the contrarian script quite closely. My last column about gold sentiment, on Apr. 21, came just four days after gold hit its high for the year; I concluded that “there are too many bulls to make any money on gold.”

Unfortunately for gold, my conclusion today — even with gold $40 per ounce cheaper — is only slightly less pessimistic than it was then.

The usual qualifications apply, however: Contrarian analysis, to the extent it works, applies only to the short term. It tells us nothing about where the gold market may be trading, say, a year from now. But if past sentiment trends are any guide, the gold-timing community over the near term will have to become a lot more bearish before gold is likely to mount a sustainable rally.

http://www.marketwatch.com/story/bull-run-for-gold-is-pure-fantasy-2017-05-05

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