First let's take a look at Mark Hulbert's sentiment data based on the attitudes of analysts who "time" gold. The following is excerpted from Hulbert's March 31 column:
Consider the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold-market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest. As of March 30, the HGNSI stood at 30.2%. Two weeks ago, in contrast, it stood at minus 16.5%. So, in just ten trading sessions, during which gold bullion on balance went nowhere, the editor of the average short-term gold timing newsletter has increased his average recommended exposure level by nearly 47 percentage points.The Fed's announced monetization caused a surge in gold and prompted a shift in the attitudes of gold timers. However, the surge in gold was the result of short covering. Judging from the previous sentiment reading in the HGNSI, the gold market was overloaded with shorts that were quick to cover on the bullish news. The news came after a major rebound of $300/oz or roughly 40%. Since the initial reaction gold has declined but the bullish sentiment hasn't.
Prior the major breakout in 2005, the peaks in public opinion (% bullish) actually trended down. Since gold has yet to breakout, we would look for a bottom in public opinion at 55% to 60%. It is currently 68% bullish. When gold breaks above $1,000, we'd look for a range in public opinion from 70% to 90%.
Overall, current sentiment readings are a bit too extended for us to believe that a breakout in gold is imminent. A correction to $850 or continued consolidation between $880 and $1,000/oz for a number of weeks would likely move these gauges to a more bullish position. Analyzing sentiment is more an art form than scientific study. Sentiment actually follows the trend most of the time. It is best used to predict turning points.