Mark Hulbert: Gold prices are soaring but there’s strong support from the past that the yellow metal hasn’t bottomed yet


Long-suffering gold bugs will likely have to suffer a while longer.

That’s because gold traders on the whole have not thrown in the towel and thereby given up on the yellow metal

Only when this so-called capitulation occurs will contrarians be confident that a bottom is at hand. Though there have been several occasions this year when it appeared that capitulation was imminent, gold traders stepped back from the cliff every time.

Today appears to be yet another occasion.

Though gold bullion dropped this week to its lowest level since April 2020, short-term gold timers appear relatively sanguine about bullion’s near-term prospects. Since the normal pattern is for gold timers to become more and less bullish along with the market, you’d expect the average gold timer to be more bearish now than at any other time since April 2020. But that is not the case. In fact, the average timer is more bullish today than in 24% of the trading days since then.

That is not what capitulation looks like.

Consider the average recommended gold-market exposure level among a subset of short-term gold timers monitored by my firm. (This average is what is represented by the Hulbert Gold Newsletter Sentiment Index, or HGNSI.) Relative to all trading days since 2000, as opposed to just the last two-and-a-half years, the current average stands at the 19th percentile of the historical distribution.

In prior columns devoted to a contrarian analysis of gold market sentiment, I have defined excessive bullishness and bearishness to be the top and bottom deciles of the HGNSI’s distribution, respectively. These deciles are shaded in the accompanying chart. Notice that over the lpast three months, the HGNSI has dipped only briefly into this bottom decile.

True capitulation would be indicated by the HGNSI dropping into this bottom decile and staying there for more than just a few days. At some of the more major bottoms in past years, for example, this sentiment index remained in this zone of excessive bearishness continuously for a month or more. In contrast, over the most recent month, the HGNSI has been in the bottom decile just two days.

The role of the dollar

One comeback to contrarians might be that the strength of the U.S. dollar is the real reason why gold has been struggling. Sentiment might have nothing to do with it.

To test for that possibility, I measured the relative explanatory roles played by the dollar and the HGNSI. As expected, changes in the U.S. dollar’s foreign exchange value do play a strong role in explaining gold’s short-term movements. But even after controlling for the dollar, gold-timer sentiment still played a strong explanatory role on its own.

So traders can’t blame gold’s disappointing performance only on the strong dollar. Their bullish enthusiasm was also a factor.

What about market timers in other arenas?

The gold market is just one of the arenas in which my firm tracks market timers’ average exposure levels. Besides the Hulbert Gold Newsletter Sentiment Index, my firm also constructs comparable indices that focus on the broad U.S. stock market (as represented by the S&P 500

or the Dow Jones Industrial Average

), the Nasdaq stock market (as represented by the Nasdaq Composite

or the Nasdaq 100 indices), and the U.S. bond market.

The chart below summarizes timers’ views.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

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