“Strong wall of worry” forming in the gold market

With gold futures tumbling to fresh multi-month lows on Wednesday, price is not the only aspect of the yellow metal that has come under significant pressure in recent weeks.  Gold sentiment has declined to extremely low levels, so much so that noted market pundit Mark Hulbert wrote this morning that “gold bugs are throwing in the towel.”

Hulbert noted that the Hulbert Gold Newsletter Sentiment Index (HGNSI) – one of the most closely-followed measures of the investment community’s stance toward gold – reached 0.3%.  This level “means that the average gold timer is essentially keeping all of his gold-oriented portfolio out of the market,” he wrote.

Although Hulbert acknowledged that the gold price proceeded to tumble over $100 in the past week – at which time the HGNSI was already at a very low reading of 13.4% – he noted that “at the 95% confidence level that statisticians often use to determine if a pattern is genuine, gold bullion tends to do better following low HGNSI levels than high ones.”

Based on these statistics, Hulbert contended that from a contrarian perspective, “a very strong wall of worry” is “forming in the gold market, one which could very well be the springboard for bullion rallying into new all-time high territory.”

“There’s another reason to expect bullion to soon begin rallying: The end-of-year period historically has been a strong one for gold,” Hulbert added.  ”Indeed, Ned Davis senior equity analyst John LaForge told me that the bulk of gold’s return over the last decade has been produced in the last several weeks of the calendar year.”

Hulbert concluded by saying that “We haven’t seen any such seasonal strength this year, needless to say. But gold’s seasonal tendencies are yet more evidence pointing in the same direction as contrarian analysis: Gold is due for a strong rally.”