Thursday, April 1, 2010

Gold Traders Bored While Stock Investors Enthused

As yours truly has been busily moving some assets from discount retail stocks and some other stocks into Gold-Trust (GTU)this past trading week, it is good to see that Trader's Narrative reports that gold sentiment is not very good; for the full blog post from March 30, click HERE.

Here is the money quote from his piece that makes me especially comfortable with a ramped-up allocation to physical gold:

While that reduction in exuberance may appear bullish at first glance, looking at the historical pattern of gold corrections in the past few years shows us that sentiment needs to get a lot lower. For example, during the low one year ago, the HGNSI (Ed.: Hulbert Gold Newsletter Sentiment Index) fell to -17%; implying that gold timers were actually short gold.

I can't tell if the "low one year ago" is the April 2009 low or the panic lows of fall 2008. In either case, the idea that sentiment "needs" to get a lot lower is unsupported. And in any case, the idea that with financial asset inflation on the march and money market reserves yielding nothing, even if we are some months from the next bull move in gold, dead money is not so terrible.

The same blog pointed out yesterday that the estimable Ned Davis' crowd sentiment index shows extreme optimism and therefore is flashing a short-term top signal; for that post, click HERE.

Gold outperformed stocks in the U. S. from late August till early December. Since then, it has been the opposite case. Perhaps it's time for a change once again.

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