Mark Hulbert Says Not Enough Pessimism For Sustainable Gold Rally

The level of pessimism amongst short-term gold timers has ramped up, according to Hulbert's Gold Newsletter Sentiment Index, but it isn't at high enough a level to match the time when gold has taken off. The Index reading is at a higher level than it was at the December '09 bottom, and well above those accompanying the March and June/July '09 bottoms. Hulbert seems to suggest that a sentiment reading below 0% makes for a good run. [Its current level is +18%.]

Contrarians would be more confident that gold could mount a sizeable rally if pessimism were to become as widespread as it did during the corrections of a year ago.

Monday's trading was a good illustration of how insufficient pessimism can thwart an otherwise powerful up-move. The dollar fell against other major currencies, which alone should have provided a big boost to gold's price. And then a trade group announced that it foresees Chinese demand for gold doubling over the next decade.

You might have otherwise expected these two developments to have translated into a sizeable increase in gold's price. Crude oil, for example, which is also very sensitive to movements in the dollar, rose nearly 3% during Monday's trading.

And, yet, gold bullion ended the day just one half of one percent higher.

He ends by noting that his Index is just a short-term tool; it says nothing about gold's long-term fate.


This kind of contrarian analysis, I should add, comes closest to regular common sense. Professional gold timers that are bearish are still interested in gold, but not at the current price. It's easy to conclude that they're bearish because they want to buy in at a lower price. This interpretation, I've found, takes the contrariness out of contrarian analysis.