Good Afternoon,

Gold moved further away from the $900 level on Wednesday, just not in the direction many had expected it to, given last week's takeoff. Losing nearly 2% in value, the metal eased back in early trading, to a low of $881.00 per ounce as rumours that the Bundesbank was in the market selling some of its massive bullion holdings to help ease the economic pain, swirled around Asian trading rooms. The German central bank denied the stories, and the country's Finance Minister warned against making hasty decisions, but today's dip reveals the fact that at least some of the metal's recent buyers are trigger-happy when it comes to locking profits in, and may not be reliable passengers on gold latest rocket ride attempt at a 'moonshot.'

The idea that 'this time, this is IT' has been floated in the wake of so many rallies, that it might become a case of the old full cinema house on fire, or of the wolf-spotting juvenile, eventually. On the other hand, the prospect that some national institutions might start having to look at their rainy-day stash as a viable source of critically lacking crisis medicine is something that this writer has expressed concerns about previously. Many other options have proven futile, while the survey of Davos attendees shows that 8 out of 10 corporate chiefs present are either despondent or non-believers in the efficacy of the global stimuli injections they are witnessing. Underscoring the unmistakable deflationary scent in the air, Super Bowl ticket resale prices fell sharply from last year.

The Fed is pulling more kitchen sinks out of storage than Home Depot's soon-to-be-closed Expo stores, and it is getting ready to throw them at the economy in a bid to get some traction out of it. If need be - so the story goes - the Fed will buy long-term Treasury securities. Interest rates are not on the current table for discussion. Zero is just fine for now, thank you. In the interim, the IMF sees the global economy barely avoiding a total stall this year and growing by 0.5% - if you want to call that number 'growth.'

The original estimates of $300 then $700, then $1 trillion, then the $1.4 trillion estimated just last October, are now focusing in on the $2.2 trillion level as a more realistic tally. Downside risk continue to dominate as the IMF puts it. The institution also said that inflation 'may fall to a record low of 0.3% in 2009 - from a previous estimate of 3.6% last November. We normally call that disinflation, but you may also go ahead and call it deflation.

Bullion was still on the defensive in the afternoon hours of NY electronic trading session, showing a 1.3% drop, or $11.50 at $886.20 per ounce, as the IMF, Bundesbank, Davos and the Fed gave participants plenty to deal with. It should be noted however, that gold fell in concert with the dollar for a second day now, raising questions about the longevity of the parting of the ways we witnessed last week. Silver was down a 7 cents, at just under the $12 mark, while platinum added a modest $4 to $949 and palladium drifted unchanged, at $188 an ounce.

The support observed during yesterday's profit-taking still appears to remain in place for bullion, but some money has started finding its way into battered equities, especially following the good bank / bad bank plan gaining traction out there. The plan could not come sooner, as banks appear to be asking for Bailout Phase II and as Wells Fargo swung to a loss in the wake its Wachovia acquisition. Stocks advanced on the Fed and FDIC plans, gaining 200 points in the Dow.

And now, it's time for the Hulbert Hour. Okay, the Hulbert minute. Some of the bulls whose favorite prefix is 'hyper' may wish to avert their vision. That, or make it the Hulbert second. Anyway, Marketwatch reports that Mark says that:

Gold certainly deserved a rest Wednesday.

After all, it had mounted an impressive rally over the previous two weeks, gaining some $100 per ounce. So we can definitely excuse gold bullion for forfeiting $9 in Wednesday trading. The more crucial question, however, is whether the decline was merely the pause that refreshes, or the beginning of a more serious drop.

Unfortunately for those hoping gold's recent rally to continue, the conclusion of contrarian analysis is that the metal's short-term trend is more likely to be down.

Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold-market exposure among a subset of short-term gold-timing newsletters tracked by the Hulbert Financial Digest. As of Tuesday night, the HGNSI stood at 60.9%.

This is identical to where the HGNSI stood at the end of December, when I last devoted a column to gold sentiment. Over the two weeks following that column, of course, bullion dropped by around $70 an ounce. Contrarian concern about gold's short-term trend isn't just based on this one data point, however. I have more than 25 years of daily data for the HGNSI, and rigorous econometric tests show that the inverse correlation between HGNSI levels and the gold market's subsequent short-term direction is statistically significant at the 95% confidence level.

This is why the HGNSI's current level is so ominous. To put it in context, consider that this sentiment gauge's average reading over the last five years has been 32.6%, only slightly more than half where it stands now. Over the last five years, furthermore, the HGNSI has been higher than where it is now just 13% of the time. This does not mean gold can't go higher from here. But it does suggest that the odds are against it doing so.

Lest I incur undeserved gold-bug wrath by writing that, let me hasten to add that this bearish conclusion applies to just the next several weeks. Sentiment affects the short-term trend of the market, not the long term. So my conclusion is entirely consistent with gold being in a major, long-term bull market.

But even if it is, the implication of my contrarian analysis is that gold is not ready, at this very moment, to commence on that march upward.

Hasta Manana.