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Why gold’s losing streak may get even worse
By: Mark Hulbert | June 28, 2018

Gold timers are still too bullish on the precious metal

What’s it going to take for gold market timers to throw in the towel and turn solidly bearish?

I ask because, even though gold GCQ8, +0.08% has been performing dismally, the typical gold timer I monitor has become only mildly bearish. According to contrarian analysis, a low-risk buying opportunity won’t come until gold timers are aggressively pessimistic and despondent.

So far this month, for example, spot gold has fallen more than $50 an ounce. It’s down over $100 an ounce since mid-April, and is sporting a greater-than-5% year-to-date loss.

And, yet, the average recommended gold market exposure level among monitored gold timers has not gotten any lower than minus 13.0% (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). That means that the average timer is allocating 13% of his gold-oriented portfolio to going short. While that is a bearish bet, it is a rather modest one; as readers of this column know, the most enduring gold-market lows of recent years have come when the HGNSI dropped to at least minus 30%.

As you can see from the chart below, the last time this low level was hit came in March 2017. For most of the past year, gold has been stuck in a fairly narrow trading range between $1,250 and $1,350 — just as contrarian analysis suggested.



This past month offers a perfect illustration. At the beginning of June, as I reported in this space, gold timers had been exhibiting an eagerness to turn bullish and a reluctance to turn bearish — exactly the opposite of the kind of sentiment backdrop that is conducive to higher prices. I concluded the column by allowing that, even if gold eventually will trade at much higher prices, “its path to those higher prices will take it lower first.”

To be sure, the probability of lower gold prices is not as great today as it was at the beginning of June. With spot gold down for so many days in a row, a bounce would not be unexpected — even if it is nothing more than a dead cat bounce.

But buying into any such rally would be a risky bet, according to contrarian analysis, since it would be built on a weak sentiment foundation. A far better decision, from a contrarian perspective, would be to wait until the HGNSI drops to at least minus 30%.

There’s no telling how long that might take. It could be that the gold timers already are on the brink of throwing in the towel, and a HGNSI reading of below minus 30% could happen as soon as a another day or two. However, given the stubborn reluctance of the gold timers over the last several weeks, there’s also the distinct possibility that it will take a lot more gold market weakness to generate the bearishness that will trigger a contrarian buy signal.

Fortunately, contrarian analysis says there is no reason to jump the gun. Instead we can let the market tell its own story.

https://www.marketwatch.com/story/why-golds-losing-streak-may-get-even-worse-2018-06-28

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