When it comes to sentiment, the gold market (GLD) is built on shaky foundations. At least, that is the opinion of Marketwatch-columnist Mark Hulbert. In the eyes of Hulbert there are too many investors who expect a sustainable gold rally at the moment, which is not a bullish indicator.
Meanwhile there are more bears compared to last month when Hulbert made his statement for the first time. Nevertheless, the overall sentiment is still more bullish compared to the lows of the last few years.
Too bullish
If you look at the average level of exposure that is advised by gold-timers (based on the Hulbert Gold Newsletter Sentiment Index of HGNSI) it is now listed at minus 33 percent, compared to plus 12.5 percent a few months ago. That is encouraging, says Hulbert, up to a certain extent.
Just like contrarian investors predicted, the biggest gold rally of the last few years was in the summer of 2013, when there were lots and lots of bears on the market. At that time, the HGNSI dropped to minus 56.7 percent.
Hulbert explains that there is a certain amount of bearishness needed to spark a rally comparable to the summer of 2013.
Not Enough Attention To Sentiment
It is also noteworthy to state that gold’s recent troubles reflects the importance of sentiment. Paying attention to sentiment will help understanding the turns of the market that would otherwise be tough to figure out. Many investors who ignored market sentiment in the last 2 months are scratching their heads at the moment.
The U.S. dollar Index (UUP), for example, dropped by a few percentage points from its March high and everyone ‘knows’ that gold should profit from weaker currencies. However, Humphrey Neill, the original contrarian often says: when everyone thinks the same thing, they are often all wrong.
According to Hulbert, as a consequence, the time will come for gold when everyone ‘knows’ the weakness in the precious metal will continue. It looks like we are close, but we are not there yet.
