Recalcitrant Radicals Remain Rabid

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In the subsequent couple of weeks, gold bullion dropped by nearly $100 per ounce, with the December COMEX gold contract hitting a low of $699 per ounce on Nov. 13. In the two weeks since, bullion has recovered a significant chunk of what it lost during October and early November.

And, yet, the editors of gold timing newsletters are just as bullish today as they were in early October, when bullion was markedly higher than where it stands today. As a result, it's difficult to see how contrarians can reach any less bearish a forecast today than then. See Oct. 16 column

Consider the current level of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which represents the average recommended gold market exposure among a subset of short-term gold-timing newsletters tracked by the Hulbert Financial Digest. As of Monday night, the HGNSI stood at 30.7%.

That turns out to be the same level at which the HGNSI stood on Oct. 9, when bullion was trading around $890 per ounce, some $70 per ounce more than where it closed on Monday. That's not an encouraging development, since the usual pattern is for timers to become more bearish as the market declines. It must mean that there is a significant amount of stubbornly held bullishness among the editors of gold-timing newsletters, which is a bad omen. Major market bottoms typically are accompanied by stubbornly-held bearishness, not stubbornly held bullishness.

Another data point that also does not point to a sustainable rally is that the HGNSI never fell into negative territory in mid-November. In fact, the lowest to which this sentiment index fell was 2.1%. That means that, even when gold's prospects appeared bleakest in mid-November, the editor of the average gold timing newsletter still was not betting on additional declines.

The gold market's correction of recent months failed to persuade enough of the gold bulls that they should throw in the towel. As a result, the sentiment winds continue not to blow in the gold market's sails. This, in turn, makes it unlikely that gold's current two-week-old rally will meet any better fate than other rallies of recent months."

Tread lightly ahead of the long hiatus and remain focused on dollar-impacting news. The staggered (but quite deliberate) Obama cabinet appointment announcements have thus far done more to bolster optimism than direct attempts to get things back on track.

Happy Book-Squaring.