re: Gold Sentiment - Hulbert:
...some things never change:
MARK HULBERT
What's up with gold?
By Mark Hulbert, MarketWatch
Last Update: 12:01 AM ET Aug. 30, 2005
ANNANDALE, Va. (MarketWatch) -- Why didn't gold rally more in anticipation of Hurricane Katrina hitting New Orleans?
HULBERT FINANCIAL DIGEST
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I'm not just playing Monday-morning quarterback, asking this question now that we know that the devastation of New Orleans was not as bad as that which had been painted by some of the original doomsday scenarios.
Instead, I'm wondering why gold didn't rally more in advance, before we knew how bad things would turn out. Crude oil spiked to over $70 per barrel, and things got so bad in the natural gas market that the New York Mercantile Exchange had to suspend trading in natural gas futures. (Read fully story.)
Yet gold acted as though nothing unusual was going on.
On Friday, for example, the nearby gold contract on the COMEX closed down $1 per ounce. And on Monday, the contract closed down an additional 70 cents per ounce.
Part of the answer may be provided by a review of market sentiment among gold timing newsletters. The average gold timer tracked by the Hulbert Financial Digest reached near-record high levels of bullishness over a week ago. And as every contrarian will remind us, the market rarely accommodates the majority.
Consider the Hulbert Gold Newsletter Sentiment Index (HGNSI), which tracks the average exposure to the gold market among a subset of gold timing newsletters tracked by the Hulbert Financial Digest. On August 18 it rose to 78.6 percent, its highest level in ten months.
The last time it was this high, gold bullion was trading in the mid 450s, or more than $10 per ounce higher than where it stood when reaching this level on August 18.
In other words, well in advance of Hurricane Katrina, almost all gold timers had already jumped onto the bullish bandwagon. Their exuberance reduced gold's future upside potential, since it meant that there was not much additional buying potential still on the sidelines.
Lest this column irritate some of the gold bugs and unleash an avalanche of angry emails, let me hasten to say that this contrarian analysis of gold sentiment has only short-term implications. It might be, for example, that gold is in the early stages of a long-term bull market, and merely got a little ahead of itself in recent weeks.
But, long-term bull market or not, the strongest rallies historically have occurred against a backdrop of far more skepticism than we have seen among gold timers in recent weeks.
So it would augur well for the gold market if sentiment were to quickly drop back in coming days, in reaction to gold's sluggishness. It would be bearish if sentiment were to stubbornly remain at high levels.
Stay tuned.
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