Mark Hulbert on Gold Sentiment
Mark Hulbert publishes sentiment data on stocks and gold, which aggregate the recommendations of market newsletter writers. The level of gold sentiment index HGNSI indicates the percentage of one’s portfolio the respective newsletter writers recommend their readers should allocate to either long or short positions in the market concerned. Keep in mind that these are averages, and that we are talking about people who are in the business of selling newsletters.
They are catering to customers who are often not necessarily interested in good recommendations, but want to see their own biases confirmed. Of course, there are many newsletters that have an excellent track record, published by advisors who are genuinely interested in offering good analysis. All we are saying is: a slight long bias is probably detectable on average.
In his latest column, Mark Hulbert argues that the current average recommendation of the gold timers – namely that people should be net short gold with 10% of their assets – is not yet indicating high enough pessimism. He writes:
“To be sure, the average gold timer is more bearish today than he was this past weekend. But he still is not as pessimistic about gold’s prospects as he was on the occasion of past tradeable bottoms.
My preferred gold sentiment indicator is the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure level among a subset of short-term gold market timers tracked by the Hulbert Financial Digest. This average currently stands at minus 10%, which means that the average gold timer is now recommending that his clients allocate 10% of their gold-oriented portfolios to going short.
That is a step in the right direction, from a contrarian point of view. When I wrote my column this past weekend, in contrast, the HGNSI stood at 16.7%. But, as you can see from the chart, the HGNSI is still not as low as it was at the bottom of gold’s other corrections over the last couple of years. At the end of last November, for example, prior to a rally that would add nearly $200 to the price of gold, this sentiment average stood at minus 36.7%.
And last June, prior to a gold rally that was even more powerful, the HGNSI got as low as minus 56.7%.To be sure, gold did mount a several-hundred-dollar rally in late 2012 off a sentiment base that wasn’t as bearish as these two instances from last year. Then the HGNSI never got lower than minus 15.7%, only modestly lower than where it stands today.â€
