Abet Chichi2

[chichi2]

"Gold timers are less bullish than at New Year's, a good sign"
By Mark Hulbert, MarketWatch
Last update: 11:57 p.m. EST Feb. 20, 2008
ANNANDALE, Va. (MarketWatch) --

Gold bullion hit an all-time high in trading Wednesday, fueled in part by the announcement that the Consumer Price Index for January was higher than expected.

And Wednesday's strength followed an even more impressive day for the yellow metal on Tuesday, when gold bullion rose nearly 3%.

Yet, surprisingly, the editor of the average gold timing newsletter is today less bullish than he was at the beginning of the year, when an ounce of gold bullion was trading for nearly $100 less.

Therein lies a bullish tale.

Consider where the Hulbert Gold Newsletter Sentiment Index (HGNSI) stands now. The HGNSI reflects the average recommended gold-market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest. As of Wednesday night, the HGNSI stood at 57.7%.

The current level is closer to the high end of the HGNSI's historical range, which extends from minus 31.3% on the low end to plus 89.6% on the high end. But it nevertheless is bullish that the HGNSI is still nearly 32 percentage points below its record high.

After all, with gold hitting all-time highs, devotees would be perfectly in their right to be feeling rather good right now, if not outright giddy. But they're not, or at least as not as much as we would expect, and that is a positive sign.

Secondly, and perhaps even more significantly for gold's short-term prospects, is the HGNSI's behavior since the beginning of the year. Since then it has fallen more quickly when gold was declining than it has gone up when gold was rising. This suggests that the underlying mood of the average gold timer is becoming more skeptical, since he has been quicker to join the ranks of the bears than he has been to jump onto the bullish bandwagon.

At the beginning of the year, for example, when bullion was trading for around $835 an ounce, the HGNSI stood at 66.1%. Today, with an ounce of gold fetching around $100 more, the HGNSI is eight percentage points lower. The net effect of bullion's two corrections in mid January and early February was to make the average timer less bullish today, even though bullion is higher.

These are encouraging trends, according to contrarians.
An analogy that contrarians sometimes use is very appropriate in describing these trends: A bull market can be thought of as a bucking bronco in a rodeo, trying its darndest to throw everyone off its back on the way to the other side of the ring. And it's doing an awfully good job of that. Gold has tacked on a $100 per ounce while nevertheless reducing the number of gold timers that are on its back.

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.