Gold Timers in Denial

MarketWatch, Mark Hulbert

Despite bullion's plunge this week, the gold timers are for the most part stubbornly holding onto their bullishness. This suggests that more downside work is necessary before a sentiment foundation can be built that would support another significant upleg.

Consider the average recommended gold exposure among a subset of short-term gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at 67%, down only slightly from the 73.7% level at which it stood on Monday of this week.

Consider the average recommended gold exposure among a subset of short-term gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at 67%, down only slightly from the 73.7% level at which it stood on Monday of this week.

That's significant, since the low price to which spot gold dropped this morning was close to $100 less than its intraday high on Monday. Usually, drops of that magnitude lead to a lot more of the bulls throwing in the towel, especially when it happens as quickly as it has this week.

Nowhere in sight is the veritable “wall of worry” that bull markets like to climb. On the contrary, the current mood in the gold market is more reminiscent of the “slope of hope” that bear markets like to descend.

According to contrarians, investor sentiment in the wake of a decline almost always evolves through the same set of stages. The only question is how long it takes.

The process begins with denial, evolves into anger and eventually ends with resignation. It would appear that we're still in that initial stage.