Newsletter Writers Turn Very Bearish

This is a little addendum to our recent gold update. Shortly after we had posted it, Mark Hulbert published an article at Marketwatch regarding the recent moves in the Gold Newsletter Writer Sentiment Index (HGNSI). Note here that this sentiment measure must be seen in the context of market action. As we have pointed out previously, there have been a number of very significant ‘misses’ of this indicator, especially in early 2003 and early 2004, when following its message would have been a grave mistake.

However, there is also the fact to consider that today’s gold-focused newsletter writers are probably not the same bunch that was active 10 years ago. Many of those who were active in 2003 had survived a 20 year long bear market, so their collective judgment was at times actually quite good.

To Mr. Hulbert’s credit, we must concede that his indicator has worked better in recent years, and his interpretations of it in the course of this year have largely been on the mark. That’s actually a good thing, as the indicator is currently showing an extreme in negative sentiment.

Here is the chart:


1-HGNSIHulbert Gold Newsletter Writer Sentiment Index – currently it stands at – 40.6% – click to enlarge.


What the percentage means is that at the moment, gold timers are recommending that their clients allocate 40.6% of their gold-related assets to shorting gold. Although the measure fell to even lower levels in the summer of 2013 and also in 1998/1999 if memory serves, this is still a historically fairly extreme level.

Mr. Hulbert notes:


“Consider the average recommended gold market exposure level 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). This average currently stands at minus 40.6%, which means that the typical gold timer is recommending that clients allocate nearly half their gold-oriented portfolios to going short the market.

That’s a particularly aggressive bet that gold will keep declining, and — at least according to contrarian analysis — these timers are unlikely to be right. As recently as last week, the HGNSI had not fallen below minus 21.9%. That was less than the lows to which this sentiment index fell last December (minus 36.7%) and in the summer of 2013 (minus 56.7%). And that, in turn, led me to conclude that contrarians were not yet ready to bet on even a short-term rally.


The usual qualifications apply, of course. Sentiment is not the only thing that moves the markets. And even when contrarian analysis is right, it doesn’t necessarily have pinpoint accuracy. But, because sentiment analysis has been on the correct side of this gold market in recent months, it’s definitely noteworthy that it’s now more optimistic.”


(emphasis added)

Now for the context: since gold is mired in another short term downtrend, it is not surprising that bearishness is high. However, gold also remains above the lows made in 2013, and gold stocks have built multiple divergences with the gold price, in the process beginning to hold up somewhat better on a relative basis. So the context is at least to some extent a mixed bag and not entirely negative.

Note by the way that yesterday’s decline in cap-weighted gold stock indexes like HUI and XAU was distorted by Anglogold (AU) announcing that it will hive off its non-South African assets into a new company. Normally such an announcement would be seen as bullish for the stock, the problem is though that in order to get approval from the SA Reserve Bank for the deal, AU had to find a way to extinguish a lot of debt. In order to to that, it plans to do a very large share issue. That was not what the market wanted to hear, and the stock was clobbered by more than 15.5%.


Given that AU is one of the world’s largest gold mining firms, it has a pretty large weighting in the indexes and has been responsible for about 50% of yesterday’s decline. Needless to say, the timing of the announcement is a real head-scratcher. We have no idea why AU’s management decided to make it just as the stock was hitting multi-month lows. However, we have often seen such announcements being made at especially inopportune times. Apparently the managers of many gold mining companies don’t consider that it can actually cost shareholders money when such announcements are mistimed (since greater dilution will now be required than would otherwise be the case).


2-AUAU crashes on news of a capital raise that has become necessary to receive SARB approval for its planned demerger – click to enlarge.


Other Sentiment and Positioning Data

Below is a quick overview of other sentiment and positioning data. Commitments of traders in gold have seen hedgers covering and speculators selling, and as of last week Tuesday, the net speculative long position (small and large speculators combined) stood at 103 K contracts. This is not very much compared to recent years, and it is highly likely that it will have become noticeably smaller in the meantime.

Note though that there is no telling where this indicator will go. If a new bear market leg lies ahead (i.e., a multi-week downtrend), then this position could conceivably be reversed altogether (from net long to net short). So it currently looks mildly encouraging compared to the levels of recent years, but it there is always the caveat that it can worsen further in the event of a more protracted bear market. Luckily for bulls, it coincides with the above mentioned extreme in the HGNSI and several other sentiment extremes – so at the very least the downside should be somewhat limited.


3-Gold-CoTCommitments of traders in gold – the hedger net position in blue, the small speculator net position in red. The latter group is by now probably either flat or slightly net short (we are guessing, as this snapshot is more than a week old. Unfortunately the release of CoT data is not very timely) – click to enlarge.


Lastly, a look at the discounts to NAV of closed end bullion funds, as well as Rydex precious metals assets and cumulative cash flows. Normally we consider it better when these discounts contract, but when they hit what are historically extreme levels, then they serve as contrary indicators as well. Again, similar to what Mr. Hulbert notes w.r.t. the HGNSI, these are by no means very accurate timing indicators. They can only tell us whether there is froth or fear in the market, and right now there seems to be quite a bit of fear.

We’ve adapted a chart that was recently posted by Erin Swenlin (formerly of Decisionpoint, now with Stockcharts) and have left the trendlines she drew on the gold price chart in. It should be noted that the triangle formed over the past year or so with its two lower highs does not look particularly encouraging, so once again, it is not a big surprise that bearish sentiment is quite pronounced at the moment. While the long term chart picture is currently discouraging, it wouldn’t take much to turn it completely around. On the other hand, if the 2013 lows were to break, that would obviously be very bad news.

The engagement of Rydex traders in the sector meanwhile is reminiscent of 1999/2000. Note though that it is not enough that sentiment is bad – that by itself will not turn the market around.


4-Gold sentiment dataDiscounts to NAV of CEF and GTU (two closed end bullion funds) plus Rydex precious metals assets and cumulative cash net cash flows – click to enlarge.



Bulls should actually hope that these sentiment trends bottom out and reverse, but that a certain amount of skepticism remains if and when they do. However, in the meantime the relatively extreme levels of the data suggest that the potential additional downside should actually be limited in the short term. It then remains to be seen how things evolve in the next bounce.



Note that this article was written prior to Thursday’s market open, so the charts reflect Wednesday’s close. Thursday’s market action does however not substantially alter the situation described above, except insofar that it can be inferred that several of the data points may have deteriorated slightly further.



Emigrate While You Can... Learn More




Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


2 Responses to “Gold Sentiment Plunges to Summer 2013 Levels”

  • Kreditanstalt:

    Strange, isn’t it…? These “speculators”, “hedgers” and “traders” go SHORT anything that is FALLING! And only BUY when something has already started RISING!

    Completely bass-ackward. Totally reliant on suppressed volatility. And completely dismissive of anything other than their desperate, grubby, craven search for YIELD, any yield, at any cost.

    Hulbert? Hulbert is a contrary indicator.

  • Kreditanstalt:

    Well, I confess to buying some more of a major gold producer (with assets in – gasp! – RUSSIA!) on Tuesday. I couldn’t bear to see the stock going begging at a fraction of its former price.

    If we’re not below cost of production I won’t believe it. If we measure our gold in ounces – or anything but Amerikan dollars – we’re doing OK. If every government on the planet being in a race-to-debase isn’t enough to drive some of that paper into even ‘paper gold’, I will be gobstruck.

    Sometimes you have to dump the charts, the graphs, the crystal balls and the backwad-looking predictions (“this resembles 1974-77” etc.) and go with your intuition and let logic and reality dictate your moves.

    It’s too damned counterintuitive and too damned OBVIOUS.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • US Stock Market: Conspicuous Similarities with 1929, 1987 and Japan in 1990
      Stretched to the Limit There are good reasons to suspect that the bull market in US equities has been stretched to the limit. These include inter alia: high fundamental valuation levels, as e.g. illustrated by the Shiller P/E ratio (a.k.a. “CAPE”/ cyclically adjusted P/E); rising interest rates; and the maturity of the advance.   The end of an era - a little review of the mother of modern crash patterns, the 1929 debacle. In hindsight it is both a bit scary and sad, in...
  • How to Blow $12.2 Billion in No Time Flat
      Fake Responses  One month ago we asked: What kind of stock market purge is this?  Over the last 30 days the stock market’s offered plenty of fake responses.  Yet we’re still waiting for a clear answer.   As the party continues, the dance moves of the revelers are becoming ever more ominous. Are they still right in the head? Perhaps a little trepanation is called for to relieve those brain tensions a bit?  [PT]   The stock market, like the President,...
  • Despondency in Silver-Land
      Speculators Throw the Towel Over the past several years we have seen a few amazing moves in futures positioning in a number of commodities, such as e.g. in crude oil, where the by far largest speculative long positions in history have been amassed. Over the past year it was silver's turn. In April 2017, large speculators had built up a record net long position of more than 103,000 contracts in silver futures with the metal trading at $18.30. At the end of February of this year, they held...
  • US Stock Market – The Flight to Fantasy
      Divergences Continue to Send Warning Signals The chart formation built in the course of the early February sell-off and subsequent rebound continues to look ominous, so we are closely watching the proceedings. There are now numerous new divergences in place that clearly represent a major warning signal for the stock market. For example, here is a chart comparing the SPX to the NDX (Nasdaq 100 Index) and the broad-based NYA (NYSE Composite Index).   The tech sector is always the...
  • Stock and Bond Markets - The Augustine of Hippo Plea
      Lord, Grant us Chastity and Temperance... Just Not Yet! Most fund managers are in an unenviable situation nowadays (particularly if they have a long only mandate). On the one hand, they would love to get an opportunity to buy assets at reasonable prices. On the other hand, should asset prices actually return to levels that could be remotely termed “reasonable”, they would be saddled with staggering losses from their existing exposure. Or more precisely: their investors would be saddled...
  • US Equities – Mixed Signals Battling it Out
      A Warning Signal from Market Internals Readers may recall that we looked at various market internals after the sudden sell-offs in August 2015 and January 2016 in order to find out if any of them had provided clear  advance warning. One that did so was the SPX new highs/new lows percent index (HLP). Below is the latest update of this indicator.   HLP (uppermost panel) provided advance warning prior to the sell-offs of August 2015 and January 2016 by dipping noticeably below the...
  • Return of the Market Criers - Precious Metals Supply and Demand
      Ballistically Yours One nearly-famous gold salesman blasted subscribers this week with, “Gold Is Going to Go Ballistic!” A numerologist shouted out the number $10,000. At the county fair this weekend, we ran out of pocket change, so we did not have a chance to see the Tarot Card reader to get a confirmation. The market criers are back in gold town [PT]   Even if you think that the price of gold is going to go a lot higher (which we do, by the way—but to lean on...
  • Good Riddance Lloyd Blankfein!
      One and the Same   “God gave me my money.” – John D. Rockefeller   Today we step away from the economy and markets and endeavor down the path less traveled.  For fun and for free, we wade out into a smelly peat bog.  There we scratch away the surface muck in search of what lies below.   One should actually be careful about quotes like the one attributed to Rockefeller above, even if it of course sounds good and is very suitable for the topic at...
  • Incrementum's New Cryptocurrency Research Report
      Another Highly Useful Report As we noted on occasion of the release of the first Incrementum Crypto Research Report, the report would become a regular feature. Our friends at Incrementum have just recently released the second edition, which you can download further below (if you missed the first report, see Cryptonite 2; scroll to the end of the article for the download link).   BTC hourly (at the Bitstamp exchange). Although BTC has been in a bear market since peaking in...
  • US Stock Market – How Bad Can It Get?
      SPX, Quo Vadis? Considering the Crash Potential In view of the fact that the stock market action has gotten a bit out of hand again this week, we are providing a brief update of charts we have discussed in these pages over the past few weeks (see e.g. “The Flight to Fantasy”). We are doing this mainly because the probability that a low probability event will actually happen has increased somewhat in recent days.   Robert Taylor and Deborah Kerr cast wary glances at their...
  • Yosemite Sam is Back!
      Dubious Picks Unless this is part of another cunning negotiation tactic, the Donald's recent cabinet nominations have to be considered highly dubious, to say the least. First he promoted Mike Pompeo from his CIA post to the position of Secretary of State – removing the eminently reasonable, and as we believe widely underappreciated Rex Tillerson. Pompeo is mainly known for sharing Trump's irrational dislike of the  nuclear deal with Iran, which was pretty much the only laudable policy...

Support Acting Man

Item Guides


Austrian Theory and Investment



THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


Buy Silver Now!
Buy Gold Now!

Diary of a Rogue Economist