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Mark Hulbert: Gold is still dazzling market timers — and that’s bearish

It’s bearish for gold that marketplace timers have been remarkably upbeat in the face of gold’s dismal efficiency this yr.

In truth, regardless of gold bullion GCQ8, -0.99%  falling $140 an ounce since its January prime, the average gold timer I track has now not became outright bearish. From a contrarian viewpoint that signifies that a tradable gold bottom isn't yet upon us.

Consider the average recommended gold-market publicity stage amongst monitored gold timers, as measured through the Hulbert Gold Newsletter Sentiment Index (or HGNSI). It lately stands at 0%, indicating that the typical timer is out of the gold marketplace however now not outright short. The present index stage is correct in the course of its historical vary, which extends from minus 56.7% to plus 89.7%.

The question that contrarians are asking: Why, if gold has performed so poorly, are gold timers on steadiness no worse than impartial?

As I discussed in a column in late June, tradable gold bottoms in most cases are accompanied through HGNSI readings no less than as low as minus 30%. Because the HGNSI at that time had now not gotten any lower than minus 13%, I concluded that “gold’s losing strike would possibly get even worse.”

The sentiment image is even less encouraging as of late. With gold down any other $15 since that late-June column, we’d differently expect the average recommended gold publicity stage to be even lower than minus 13%. That’s because the customary pattern is for marketplace timers to transform more- and not more bullish together with the marketplace’s rallies and declines. That the average marketplace timer didn't behave in this approach suggests there is a sturdy undercurrent of stubbornly held bullishness in the gold marketplace.

That’s now not the sentiment foundation on which sturdy rallies in most cases are built.

To make certain, sentiment isn't the one factor impacting the markets. And even when contrarian analysis’ forecast is accurate, it applies essentially to the shorter term slightly than the long run. So gold’s discouraging sentiment image does now not whatsoever translate right into a ensure that gold’s near-term route is down — or that gold a yr from now couldn’t be higher.

Still, it’s value noting the failure of alternative broadly cited elements to account for gold’s recent momentary weakness. Take inflation, since gold is broadly regarded as to be an inflation hedge. In distinction to the Consumer Price Index’s 2.1% building up in 2017, its charge of building up over the past 12 months is two.nine%. Other things equal, due to this fact, one would have concept that gold would have increased this yr — now not fallen significantly.

Or take geopolitical risks, since gold is broadly thought to be a hedge against geopolitical uncertainty. At least in keeping with an index of such uncertainty that has been constructed through two economists at the Federal Reserve, then again, geopolitical risk as of late is reasonably higher than it was once final yr. So, to the level gold hedges such uncertainty, you’d expect gold to be higher as of late than earlier this yr.

The base line: Contrarians received’t trigger a buy sign till the gold timers on steadiness transform much more discouraged.

For more information, together with descriptions of the Hulbert Sentiment Indices, pass to The Hulbert Financial Digest or email [email protected] . Create an email alert for Mark Hulbert’s MarketWatch columns right here (requires sign-in).

Mark Hulbert has been tracking the recommendation of more than 160 financial newsletters since 1980.

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