Gold exchange traded fund watchers may see more pain before a bullish trend appears, according to contrarian analysis.
Gold prices rallied last June and December after the Hulbert Gold Newsletter Sentiment Index (HGNSI) dipped to a negative 56.7% and negative 36.7%, respectively, writes Mark Hulbert for MarketWatch.
The HGNSI represents the average recommended exposure to the gold market among short-term gold timers tracked by the Hulbert Financial Digest. A negative indicator shows that the average monitored gold timer is short the market, or bets on a decline.
While the HGNSI still shows bearishness, the current negative 16.7% reading is still far below last year’s levels.
In the current environment, gold traders have been using bullion to hedge against market risks, namely geopolitical tension between Ukraine and Russia. The sentiment index jumped into positive territory late February, but quickly shot back down, revealing the greater effect sentiment has over geopolitical tensions. [Ongoing Ukraine Crisis a Boon for Gold ETFs]
“According to contrarian analysis, a tradeable low will come when there is a lot more bearishness than there is today, as evidenced not only by a lower HGNSI reading but also a reticence to jump back on the bullish bandwagon when a rally does begin to materialize,” Hulbert said.