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Mark Hulbert Archives | Email alerts
Oct. 26, 2011, 7:51 a.m. EDT · CORRECTED
By Mark Hulbert, MarketWatch
An earlier version of this column incorrectly stated gold's price in March 2009.
CHAPEL HILL, N.C. (MarketWatch) "â? They're blaming Greece again.
This time it's to try to explain why gold soared more than 3% on Tuesday.
/quotes/zigman/661658 GC1Z 1,721.60, +21.20, +1.25%
But if you believe that explanation, how do you account for gold's behavior just three sessions previous? The headline news last Thursday from the European debt front was just as dismal, and yet gold during that day's trading plunged more than 2%.
Just as Greece has become a convenient whipping boy to help explain the stock market's woes, it is being asked to play this same role for gold as well.
The fact is, of course, that we don't always know why the gold market went up or down on a given day. Rather than admitting that, we instead tell stories that might have superficial plausibility, but which don't stand up to much scrutiny "â? sort of like a Rudyard Kipling "Just So"? story.
An important factor that rarely gets the attention it deserves is advisory sentiment. My research has shown that, more often than not, gold rallies following periods in which gold timers are abnormally bearish "â? and vice versa.
Yet you never see a headline that reads: "Gold rose today because there are too many bears."?
Click to Play $(function () { $("#video_E6780623-8823-4276-805F-92B0401F9477").click(function (e) { e.preventDefault(); MarketWatch.Video.loadAndStartVideo('E6780623-8823-4276-805F-92B0401F9477', 'video_E6780623-8823-4276-805F-92B0401F9477', '287', '162'); }); }); Gold and stocks return to formWhen the predominant concern of the market is inflation, then gold and stocks move inversely, but when concerns crop up about deflation and the slumping economy, gold and stocks move in tandem, Mark Hulbert tells Laura Mandaro.
Just such a headline applies to Tuesday's trading, by the way. Consider the average recommended gold market exposure among the short-term gold market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). By the end of this last week, this average dropped to its lowest level in two and one-half years "â? minus 13%.
That meant that the average gold timer was recommending that his clients allocate 13% of their gold portfolios to going short, which is an aggressive bet that gold will go lower.
The last time the HGNSI was this low was in March 2009, when gold bullion was trading below $1,000 an ounce.
From a contrarian perspective, Tuesday's rise was not a surprise.
Contrarians furthermore anticipate gold to continue rising. That's because, even in the wake of Tuesday's jump, the HGNSI remains almost as low as it was last Friday"â?minus 6.3%.
Don't be surprised, therefore, if gold continues to rally in coming sessions. Just don't blame Greece if it does.
Click here to learn more about the Hulbert Financial Digest.
//$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now. Collapse
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