By one historically accurate contrary sentiment metric, the gold market is poised to stage a surprising move higher soon.  From the Hulbert Gold Sentiment Newsletter Index:

over the three decades I’ve been tracking investment newsletters, the gold market has — on average — adhered to the contrarian pattern. That is, bullion has turned in far higher returns in the wake of low HGNSI levels than in the days and weeks following high readings.

Here’s a link the full article:  Sentiment Pointing To Higher Gold Prices

If memory serves me correctly, I believe the HGNSI bottomed around the 18 level in October 2008 vs its current 23.5 reading.  Both sentiment readings point to extreme pessimism/bearishness, which typically forecasts a big move higher coming.

Back then gold disconnected from its correlation with the stock market and began a move from $700 to its current $1211 level, or 73%.   The fundamentals supporting the price of gold have only strengthened considerably since Oct 2008, including a global movement of gold investors seeking to take actual physical delivery.

One other point, the import premiums for India and Viet Nam on Friday snapped back sharply to unusually high levels, indicating that the $40 price drop stimulated widespread, aggressive buying in those two countries, the 2nd and 5th largest gold buying nations.

The market is telling us one thing for sure:  Americans may be clueless with regard to gold, but the rest of the world has become used to $1200 gold and will welcome any downside price manipulation by U.S. banks with widespread arms.

Source: http://truthingold.blogspot.com/

In other COT news, gold fans will be happy to know that the number of commercial gross and net short positions in the precious metal has hit a new all time record of 475,678 gross and 288.916 net shorts. It is getting increasingly more expensive to the commercial players to preserve the price of gold at current levels, even with unlimited paper shorting capacity. As ETF’s such as GLD accumulate increasingly more (hopefully real) gold inventory (yesterday’s record number of 1,316 tonnes in GLD has not be updated for today yet), it will, in turn, become increasingly more difficult to push down gold price even as all the big players try to gold paper gold down.

Source: http://www.zerohedge.com/article/eur-shorts-return-commercial-gold-net-short-positions-hit-all-time-record

One of the reasons the gold bull market has far more time and room to run is that people have bubble fatigue. With numerous bubbles blowing up in the last ten years, Wall St and the public are quick to declare anything a bubble despite their inability to understand and analyze sentiment. Hence, we hear asinine concerns about too many advertisements. Tell me; are bonds in a bubble only because Pimco is advertised around the clock on CNBC?

Unlike these armchair analysts, we use a handful of sentiment indicators that are far more reliable and actionable.

Sentimentrader.com’s public opinion is simple but effective. It shows what percent of the public is bullish. Their data shows that the public was actually more bullish on Gold from 2005-2008 as public opinion spent a fair amount of time in the range of 75% to 90% bulls. In the last 24 months public opinion has yet to surpass 75% bulls.

COT data is another way to gauge sentiment. Did you know that open interest is about the same as where it was at the 2008 peak? Gold has climbed nearly 25% yet open interest hasn’t accelerated the way it did in late 2007.

We also track put-call data from the International Securities Exchange. Below is an updated chart of GLD’s put-call. As you can see, it has been quite reliable.

Why do we focus so much on sentiment? Sentiment is more important in the precious metals markets as they are emotionally driven. Sentiment helps us predict and measure potential volatility. It helps us gauge short and medium term risk.

Even after 20 months of record gains in the precious metals and related shares, sentiment remains relatively favorable. In fact, it looks better relative to 2006 and 2008. With the collapse of 2008 still fresh in mind, investors are quick to worry and that worry is sustained and enhanced by the sustained advance in the metals and shares.

Of course the misguided and ill-informed think the spectacular recovery is an aberration.  Not once have they said it’s a bull market. We have to remember that your typical trader, broker, analyst has never witnessed a bull market in Gold. They think the days of the 80s and 90s are the norm. Throw in the “bubble fatigue” as a result of the past 10 years and there will be plenty of skepticism as Gold soars to $2000/oz and higher in the next 12-18 months.

For complete sentiment and technical analysis and fundamental analysis on the gold and silver stocks, consider a free 14-day trial to our premium service.

Best of luck!

Jordan Roy-Byrne, CMT

http://www.thedailygold.com/newsletter

Jordan@TheDailyGold.com

We contrarians cringe when sentiment gets too frothy, gold is pumped on CNBC and a respectable titan of the conventional investment world speaks of gold as an “asset class”. We cringe, but also realize that at some point in the process, the public is gonna go all-in. At least that’s the script that is usually followed.

Source: http://biiwii.blogspot.com/

Consider the average recommended gold market exposure among the gold timers monitored by the Hulbert Financial Digest (as judged by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). It currently stands at 37.8%.

To put that in perspective, consider that the HGNSI stood at 60.9% early this past January, and got as high as 68% this past December — even though gold bullion on those earlier occasions was trading for as much as $100 per ounce less.

It’s really quite amazing that the gold timers today aren’t more bullish. During last Friday’s trading session, when bullion broke out to a new all-time high, the HGNSI didn’t budge. And it rose only 7 percentage points as gold briefly traded at an even higher level on Monday.

Just imagine how euphoric stock market investors would become if the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,210, -88.12, -0.86%) were to have just traded above its previous all-time high of 14,165. There’d be dancing in the streets.

Full Story Here

Gold

Gold remains on track (as far as our template).  Here is the potential bullish outcome.  The longer Gold holds above $1160 and that trendline, the more likely the bullish outcome.

Sentiment remains supportive.  See the GLD put-call below.  Also, public opinion from sentimentrader.com is 69% bulls.  Interim tops have occurred at 75% while significant tops at 85%.  Consolidation for another month or two would leave public opinion near 60% bulls.

Gold Stocks

This is an interesting juncture for the gold stocks.  There is enough evidence to make a case that the recent low will hold.

Note that the bullish percent index is at 45% (neutral to slightly oversold).  Note that the 7-day GDX put-call is at a level consistent with bottoms.  Note the put-call spike on Friday.  Consider that gold stocks are performing well in real terms.  Also consider that the HUI has twice recently held above both the 100 & 200 day-MA’s.

Initial support is 425-430, with very strong support at 380-400.  Initial resistance is now 470-475.

Here is the GDX put-call data we referenced above.

Jordan Roy-Byrne

http://www.thedailygold.com/newsletter

Jordan@TheDailyGold.com

The piece is here: http://www.marketwatch.com/story/gold-bugs-are-cheerfully-rampant-2010-05-17

Quoting the important parts:

More clearly encouraging are the sentiment measures. Both MarketVane’s Bullish Consensus for gold and the Hulbert Gold Newsletter Sentiment Index actually went down last week — MarketVane by 3 points to 74% and the HGNSI by 14.4 points to 32.2%.

Since their 2010 ranges are 69% – 83% and 18% – 60.9% respectively, from a contrary-opinion viewpoint they appear to favor a rally rather than a meaningful sell-off.

I am not saying this Rydex retail interest sentiment indicator is perfect – no indicator is. On Friday, however, the assets in the Rydex fund “broke out” above $140 million. Here is a chart of the fund assets over the past 9 months or so that I created to show the last time a break out over $140 million occurred following a lull/nadir:

And here’s a 1 year candlestick plot of the Gold price in U.S. Dollar terms to show where the two highlighted jumps over the $140 million mark in the previous chart occurred:

If we’re setting up for another frenzied bull run in the Gold patch and recent history is a guide, we’re likely to hit at least $300 million in assets for the Rydex Precious Metals Fund before the next peak. We may well go above the $300 million level if this is an extended bull move higher, as I am suspecting. I sure wouldn’t want to bet against Jim Sinclair’s call for a Gold price of $1650/oz by January, 2011.

The Rydex sentiment data is just another piece of the puzzle lining up in the Gold sector’s favor. There is another sentiment indicator I will be watching carefully to help detect “the” major intermediate term top. It won’t come into play for months, but it also remains in bullish alignment and shows the lack of “froth” in the Gold sector. It is the Central Fund of Canada to Gold ratio chart (CEF:$GOLD). Check this previous post if you’re not familiar with my research on this interesting ratio.

Here is a 10 year weekly linear weekly plot of the CEF:$GOLD ratio chart with my thoughts:

It would make sense to have a powerful move higher now in Gold and silver and their related equities. I think the seasonals may end up being less relevant this year and the Gold sector will continue to power higher throughout the remainder of 2010, though with plenty of twists and turns along the way to keep the wall of worry intact. First thing’s first, though. It’s time to see how strong resistance is at the $1225/oz mark for Gold. How Gold stocks react to this inchoate short-term move in Gold should tell us how strong the resistance at $1225 is likely to be.

If major Gold stock indices strongly outperform the Gold price as it heads towards $1225, we should be set for a strong bull cycle thrust that may well last 6-12 months and Gold should blast through $1225 quickly. If Gold stocks lag or barely keep pace with the Gold price, then resistance at $1225 will likely be significant and we will then need to consolidate for a few weeks at the highs before a move to new all time highs in the U.S. Dollar-based Gold price can occur. I am betting on the former of these two scenarios but will react to what the market gives us.

I remain all in and thus as biased as can be, but I think the public and momentum traders are about to wander back over to the Gold patch for a while. Now that I’m properly positioned in my trading accounts to sell them what they want (at higher prices, of course), I’d like to formally welcome the herd back to the only secular bull market left standing. The secular point of recognition is drawing near for all things precious, shiny and metal.

Of course, my physical Gold is not for sale and I wouldn’t consider selling it until the Dow to Gold ratio reaches 2. Oh yes, my sweet little paperbugs, we are going to get there whether you believe it or not. When the time comes, the fiat paper debt ticket proceeds from such a sale of physical metal will of course be used to purchase Gold stocks (if this sounds crazy, see my previous post on the subject).

Commodity Online

In an online poll of a sample size of 21,600 respondents selected from across the globe, 93% or 20,100 of the total sample size had opined that there would be a fall in gold prices due to a recent upbeat mood in the global equity markets, while only 1400 respondents contradicted the stand, while 0.46% did not comment on either side. This showed that most of the respondents believed that there would be a fall in gold prices in near future due to recovery in global equity markets.

However, with regard to the other metals being an investment destination, most of the respondents maintained a view that they (base metals) can potentially become an alternative investment instruments. As many as 64.35% of respondents considered base metals as a potential investment instrument but of them, 53% still chose gold as a preferred investment instrument compare to base metals, while 46.76% preferred base metals to gold.

Similarly, of the total respondents as many as 53.1% believed that US dollar would replace gold from its status of ‘safe haven’. Looking at the recovery of US economy from the nightmarish recession which had started from the US and hit the world economy in 2008, dollar was found gathering steam once again. However, 46.8% of the respondents contradicted the view and maintained their skepticism towards dollar and put gold to their preferred investment mode.

The question is, how valid is this kind of sentiment poll?