Mark Hulbert: Gold Hitting This Short-Term Bottom

On May 17th Gold (NYSE:GLD) reached a one month low price of $1,480 per ounce. The next day, says MarketWatch, contrarian analysts chimed in and declared “evidence is growing that gold has formed at least a short-term bottom” and that “the stars appear to be aligning in favor of the yellow metal.” So it turns out that the contrarian’s had the right idea in mind several weeks ago, as since that date Gold prices have jumped over $65.

Obviously we can’t make any more money out of that call, but what do contrarian analyst think of current gold prices? Are will still in near-bottom territory or is gold (NYSE:GLD) trading at a more reasonable level? According to contrarian’s who as their title suggests like to play against mass market trends, gold’s rally in the past few weeks does not encourage a “buy now” attitude, though there is some reason for optimism.

From MarketWatch, “Fortunately, the return to bullishness among gold (NYSE:GLD) traders has been quite restrained. As long as the timers only begrudgingly turn bullish in the face of a strong market, contrarians will continue to give gold’s rally the benefit of the doubt. Consider the average recommended gold exposure among a subset of the shortest-term gold timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at just 20.3%, which means that the average gold timer is currently allocating nearly 80% of his or her gold portfolio to cash.”

The HGNSI was at 7% in the days preceding Gold’s surge to nearly $1550 that started on May 17, so at 13% points higher one must consider what kind of impact the measure will have on future gold prices. According to Mark Hulbert there is reason to be bullish on gold right, saying, “even though gold closed Monday within 10 dollars of its previous all-time high, the HGNSI currently stands 53 percentage points below where it stood when gold hit that earlier high.”

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