2011-10-25

Gold Sentiment Hits Multi-Year Low, Time to Buy?

The gold price climbed higher Monday, rising back above the $1,650 per ounce level. Despite the fact that European leaders decided at this past weekend’s summit in Belgium not to use the European Central Bank’s balance sheet more aggressively to combat the sovereign debt crisis, investors bid up the price of gold anyways. Gold prices have been mired in a correction as debate rages over whether the current deflation scare is in the process of sending the global economy into a new recession.

The Hulbert Gold Newsletter Sentiment Index (HGNSI), a closely followed measure of investor views on the price of gold, tumbled to -13% as of last Friday. The HGNSI – which measures gold timers’ recommended exposure to the gold – fell into negative territory for only the third time this year. Each instance was “associated with important bottoms” in the gold price, according to HGNSI founder Mark Hulbert. In addition, the HGNSI reached its lowest level since the depths of the financial crisis in the fall of 2008. The negative reading indicated that gold timers recommended a net short exposure to the gold , a relatively rare occurrence.

From a contrarian perspective – a view that Mark Hulbert frequently espouses – the severely low sentiment reading is a bullish factor. As noted above, on each prior occasion when the HGNSI fell into the red, the price of gold soon turned higher. Based on the data, investors could certainly pick a worse time than now to buy gold.

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