Sentiment suggests the yellow metal has a tough road ahead of it The gold market is still resting on a shaky foundation of sentiment. You may recall that this is the same conclusion I reached a month ago. And, just as contrarian analysis concluded then, gold has not since mounted a rally. Though there has been a lot of volatility — including an $18 rise on Monday and a $7 decline on Tuesday — gold today is barely changed from where it stood in early March. And, yet, the average short-term gold timer monitored by the Hulbert Financial Digest is more bullish today than then. As a result, contrarian analysis is even less bullish on gold today than it was a month ago. The average gold timer’s recommended gold exposure level (as represented by the Hulbert Gold Newsletter Sentiment Index, or HGNSI), for example, currently stands at 12.5%. On the occasion of my month-ago column, in contrast, the HGNSI stood at 0%. This means that the gold arena still isn’t exhibiting the thorough-going skepticism and despair that typically accompanies a so-called tradeable bottom. Consider the three occasions over the past two years in which the HGNSI did drop to levels below minus 40%. As you can see from the chart at the top of this column, they were: July 2013. The HGNSI early that month dropped to minus 56.7%, indicating that the average short-term gold timer was allocating more than half of his gold-trading portfolio to going short. Over the next two months, gold rose by 19%.September 2014. Late that month, the HGNSI fell to minus 46.9%. Bullion rose by 5% over the next couple of weeks.December 2014. The HGNSI also fell to minus 46.9% at the late-December lows. Bullion rallied by 11% over the ensuing four weeks. In contrast, notice that when gold dipped down to the mid-$1,100s in mid-March, the HGNSI fell only to minus 31.3%. And it didn’t stay there long, quickly jumping at the first signs of a gold rally. That indicates a relative eagerness to believe that gold will soon rebound in a big way, which is not encouraging from a contrarian perspective. Contrarians would be more confident in gold’s ability to rally if there were instead a robust “wall of worry” for the market to climb. To build that wall, gold timers would have to become markedly more bearish than they have in recent weeks, and then be less eager to believe in gold at the first sign of a rally. In the meantime, the picture the sentiment data are painting is more akin to the “slope of hope” than a “wall of worry” — and the market more often than not falls down a slope than climbs it. Mark Hulbert