Tuesday, March 29, 2011

Mark Hulbert Says Gold Optimism Worrisome

In his latest Marketwatch column, Mark Hulbert says bullish sentiment for gold is at worrisomely high levels. Evidently, the metal's rebound from its plummet two weeks ago has gotten short-term timers excited.
Consider the average recommended gold market exposure among a subset of short-term gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). It currently stands at 67%, which means that the average gold timer is allocating two thirds of his gold portfolio to gold and gold-related investments, keeping only one third in cash.

To appreciate just how much bullishness this represents, consider that the highest the HGNSI has risen to over the last two years is 71.9%, only slightly higher than today’s reading. Over the last five years, furthermore, the HGNSI has never gotten higher than 75.2%.
In other words, optimism is close to being at a record high right now.

Given that gold's currently consolidating, and is not that far away from its record high, that level of optimism does speak to some froth in the market. No wonder why cagey traders, and bargain hunters, are awaiting substantially lower prices before jumping onto the slope.

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