Silver could fly if China stops selling

Section:

By Mark Hulbert
CBS.MarketWatch.com
Friday, January 7, 2005

http://cbs.marketwatch.com/news/story.asp?guid=%7BA3615992%2D0CA5%
2D498C%2D9006%2DF0D948DBC254%7D&siteid=mktw&dist=

ANNANDALE, Va. -- Gold bullion's plunge over the past
month is likely to be a mere correction within the
confines of a long-term bull market.

That at least is the conclusion of contrarian analysis, in
light of how quickly most gold timing newsletters have
jumped on the bearish bandwagon. More typical of a
market top is stubborn bullishness, and what we've
seen in recent weeks is anything but.

Consider the latest readings from the Hulbert Gold
Newsletter Sentiment Index (HGNSI), which reflects
the average exposure to the gold market among a
subset of short-term gold timing newsletters tracked
by the Hulbert Financial Digest. As of Thursday
night's close, the HGNSI stood at negative 23.2
percent, which means that the average gold timer in
this group is actually net short the market.

As recently as the end of November, when an ounce
of gold bullion was trading for nearly $30 more than
where it's trading today, the HGNSI stood at plus
78.6 percent.

That means that, over the past month, the gold
market exposure of the average gold timing newsletter
has dropped by more than 100 percentage points.
That's more than just an orderly retreat. That's a
veritable rush to the exits.

On the contrarian theory that markets like to climb a
wall of worry, this is good news.

In fact, the average gold timing newsletter that the
HFD tracks is now more bearish than at any time
since late 1997, more than seven years ago.
Furthermore, the HGNSI's level at that time -- negative
31.3 percent -- was not that much lower than the
current reading.

It's amazing that the HGNSI today is anywhere close
to its low level of late 1997, if you stop to think about
it. At that time, gold was more than 15 years into a
severe bear market. Despair was an entirely
understandable reaction to where the market stood.

Today, in contrast, bullion is higher than it at any time
in years, but for a few trading sessions at the end of
last year. And yet the average gold timer appears to be
as dejected as he was near the depths of a punishing
long-term bear market.

Another perspective on gold market sentiment comes
by contrasting gold timers' recent behavior with stock
market timers' reaction in March 2000, at what turned
out to be the top of the stock market and the bursting
of the Internet bubble. During the first 10 percent
correction after that top, the average stock market
timer actually increased his equity exposure.

Now that is stubborn bullishness. And we all know what
happened next.

This is not at all the situation that currently prevails
among gold timers.

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