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Gold, languishing at a five-month low, still isn’t ripe for buying
By: Mark Hulbert | December 15, 2017

More bearishness needs to set in for contrarians to embrace the precious metal



CHAPEL HILL, N.C. — Sentiment in the gold market will be so pessimistic one day that contrarian investors will flash a “buy” signal.

That day is not yet upon us.

This is the same conclusion I reached six weeks ago, by the way, the last time I devoted a column to gold market sentiment. That’s when I reported that, according to contrarian analysis, “there is not enough skepticism among gold timers to support a big rally in gold and gold-mining shares.”

Since then, of course, the price of gold GCG8, -0.01% has been mostly lower. It currently trades for about $20 less than where it was in late October and sits at a five-month low. In that time, the S&P 500 Index SPX, +0.89% has gained 4% and the Dow Jones Industrial Average DJIA, +0.62% has risen 5%.

Unfortunately for long-suffering gold investors, the sentiment situation is no more upbeat today than then. In fact, the outlook is bleaker.

Consider the average recommended gold market exposure among a group of short-term gold market timers that I monitor (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at 0%, higher than the minus 8% in late October.

Since a 0% reading means the typical gold timer has no long exposure, you might think there already is a healthy dose of pessimism out there. But the current reading is still well above the minus 30% reading that in recent years has supported a more sustainable advance. (See accompanying chart at the top of this column.)

The current sentiment is even bleaker than it looks on the surface, given that gold is lower today than in late October. So you’d otherwise expect the HGNSI to be somewhat lower today than then — not slightly higher. This suggests that a significant number of gold timers are stubbornly bullish, which is more the hallmark of an imminent decline than of a significant rally.

Contrarians will consider issuing a “buy” signal only when these stubbornly bullish gold timers throw in the towel. And they will be even more likely to turn bullish when the gold timing community remains aggressively bearish for many days in a row.

Though contrarians typically don’t hazard a guess as to when that will occur, it hasn’t escaped their notice that the gold market’s recent behavior — discouraging as it otherwise has been — is still not enough to convince enough gold timers to throw in the towel.

If recent market action isn’t enough to do the trick, one can only imagine what will. That suggests that a “buy” signal may be further away than we might otherwise guess.

In any case, the usual qualifications apply: Contrarian analysis doesn’t always work, and even when it does, it is only a short-term market timing tool, providing little or no insight into gold’s longer-term direction.

But, insofar as the future is like the past, odds are that the gold will continue to struggle over the near term until the gold timing community becomes a lot more pessimistic.

https://www.marketwatch.com/story/gold-languishing-at-a-five-month-low-still-isnt-ripe-for-buying-2017-12-15

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