By Mark
Hulbert
MarketWatch
March 17, 2009
Over the past three
weeks, the editor of the average gold timing newsletter I monitor has hastily
jumped off the bullish bandwagon. And a not insignificant number have taken the
occasion to furthermore jump onto the bearish bandwagon.
At least from the point
of view of contrarian analysis, this is good news for gold
Consider the Hulbert Gold
Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold
market exposure among a subset of short-term gold timing newsletters tracked by
the Hulbert Financial Digest. The HGNSI's latest
reading is minus 16.5%, which means that the editor of the average gold timing
newsletter is recommending that his subscribers allocate 16.5% of their gold
portfolios to shorting the market.
Three weeks ago, in
contrast, the HGNSI stood at 60.9%. So in just 15 trading sessions, the average
recommended gold market exposure has fallen by more than 77 percentage points.
What sins did gold
bullion commit to elicit this huge of a reaction? Failing to rise convincingly
above the psychologically important $1,000 barrier, apparently: Spot gold in
the futures market was able to close above that level for just one day (Feb. 20), and only barely at that ($1,001.70). And it then
dropped.
Still, gold didn't fall
off a cliff. It's currently just 8% below its Feb. 20 close, after all.
Declines of that magnitude typically do not lead to such marked shifts in
sentiment from bulls to bears.
Just take sentiment in
the stock market. The Dow Jones Industrial Average dropped a comparable amount
-- 8%-- between Feb. 26 and March 9. But the average recommended stock market
exposure among short-term stock market timing newsletters fell over this period
by a grand total of just 4.5 percentage points. That's a far cry from the 77
percentage points by which gold sentiment fell during its recent 8% decline.
To be sure, the 4.5
percentage point drop in recommended stock market exposure is itself
surprisingly modest, which is one of the reasons that contrarians suspect that
the bear market is not yet over. But the plunge in gold sentiment has been as
exaggerated as the drop in stock sentiment has been muted. Contrarians
therefore believe that gold's recent decline is more likely to prove a
correction within a longer-term up move than the beginning of a major bear
market