Golden Slope of Hope

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...The contrarian-based concern with this current Hulbert Gold Newsletter Sentiment Index (HGNSI) level is not that it is too high in an absolute sense. Instead, the worry is that the HGNSI grew too quickly when gold bullion started to rally in mid-September...

Take Friday, the day in which the much-vaunted Wall Street bailout legislation finally received Congressional approval. There is no reasonable doubt that this legislation will have significant long-term inflationary consequences.

And yet, guess what happened on Friday to gold bullion, perhaps the most sensitive of inflation hedges? Far from rising, it fell -- by more than $11 per ounce.

Needless to say, sentiment was not the only cause of gold's surprising decline. But I do suspect that it was one of the major causes, since there has been an excess of bullishness among gold-timing newsletters in recent weeks. Consider the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of the shortest-term gold-timing newsletters tracked by the Hulbert Financial Digest. As of Friday night, the HGNSI stood at 30.7%.

The contrarian-based concern with this current HGSNI level is not that it is too high in an absolute sense. Instead, the worry is that the HGNSI grew too quickly when gold bullion started to rally in mid-September...

There's another feature of the recent sentiment picture that leads contrarians to question whether the Sept. 11 low was the final low of the gold bear market that began in March. Even though, at that low, gold was nearly 30% below its March high, the HGNSI was still positive...

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