CHAPEL HILL, N.C. — Notwithstanding gold’s $100 plunge implicit the past week, we inactive don’t person a contrarian bargain signal.
That’s due to the fact that the prevailing temper successful the golden marketplace GC00, -1.81% is not yet sufficiently pessimistic. Though golden traders person go much cautious implicit the past week, they haven’t wholly thrown successful the towel. Only erstwhile they bash volition a contrarian bargain awesome beryllium forthcoming.
These are the conclusions I gully from an investigation of golden marketplace timers’ mean recommended golden vulnerability level (as measured by the Hulbert Gold Newsletter Sentiment Index, oregon HGNSI). This mean presently stands astatine minus 4.8%, which means that the mean timer is allocating a tiny information of his golden trading portfolio to going short. Past contrarian golden signals person travel erstwhile the HGNSI was adjacent lower.
The HGNSI successful precocious June did concisely dip down acold capable to participate into the portion of utmost bearishness, which I specify to beryllium successful the lowest 10% of each past readings. (This portion is beige-colored successful the accompanying chart.) But the HGNSI dipped lone hardly into this portion and didn’t enactment determination for long; astatine the archetypal motion of spot successful the golden market, the mean golden timer rapidly turned much bullish. This is why, arsenic I warned successful an early-July column, gold’s consequent rally would beryllium rather humble and scope bound.
The astir sustainable rallies successful the past person travel erstwhile the mean golden timer was not lone highly bearish, but stubbornly so. This is what happened successful February and March of this year, arsenic the illustration illustrates: The HGNSI remained successful the portion of utmost bearishness for implicit a month. Gold’s consequent rally was impressive, with bullion rising implicit 13% and golden mining shares rising much than 22% (as measured by the VanEck Vectors Gold Miners ETF GDX, -2.32%.
In the rally that began successful precocious June/early July, successful contrast, neither bullion nor golden mining shares roseate much than astir 4%.
How agelong volition it instrumentality until a beardown contrarian bargain signal? Contrarians typically don’t adjacent effort an answer, letting the markets archer their ain communicative successful existent time. If the golden timers successful coming days bash yet propulsion successful the towel, and past stay bearish successful the aftermath of immoderate archetypal amusement of golden strength, past a contrarian bargain awesome could travel sooner alternatively than later.
If not, past we volition person to wait.
S&P beats gold
This week is the 50th day of the U.S. coming disconnected the golden standard, arsenic I sermon successful The Wall Street Journal. It was connected Aug. 15, 1971, erstwhile past President Nixon ended the convertibility of the U.S. dollar into golden bullion astatine the fixed terms of $35 per ounce.
Since then, golden has produced an 8.1% annualized instrumentality implicit the past 50 years, including its caller weakness. That compares to 11.2% annualized implicit the aforesaid play for the S&P 500 SPX, -0.03% (including reinvested dividends).
Mark Hulbert is simply a regular contributor to MarketWatch. His Hulbert Ratings tracks concern newsletters that wage a level interest to beryllium audited. He tin beryllium reached astatine email@example.com