Even Mark Hulbert now admits possibility of gold manipulation


Some Gold Timers Remain Stubbornly Bullish

By Mark Hulbert
Thursday, October 16, 2008


ANNANDALE, Virginia -- Can you say, "inflationary"?

The dominant feature of the economic landscape over the last month has been the eagerness of monetary authorities around the globe to throw huge amounts of money at the banking system.

If you want a textbook illustration of what economics textbooks refer to as "helicopter money" -- the huge inflationary phenomenon for which Fed Chairman Ben Bernanke earned his nickname as "Helicopter Ben -- the last month would seem to be it.

And yet gold bullion, the ultimate inflation hedge, hit a one-month low on Thursday, falling $34.50 on Thursday lone.

What's going on?

Readers probably can guess my answer: I think it is in large part due to market sentiment. According to contrarian analysis, there's been an excess of bullish sentiment in recent weeks and months, in effect forming the veritable golden slope of hope that makes it easier for the market to decline than advance.

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 Thursday night, the HGNSI stood at 37.9%.

To put that level in perspective, consider that the HGNSI was seven percentage points lower when I wrote my most recent column on gold sentiment (on October 5), despite gold bullion being some $25 per ounce higher.

It's not an encouraging trend, according to contrarian analysis, when market timers become more bullish as the market declines. That suggests a significant amount of stubbornly-held bullishness, which is just the opposite of the kind of sentiment environment that supports sustainable rallies.

Some of you have objected to my applying contrarian analysis to the gold market, on the grounds that it is being manipulated by the monetary authorities and therefore not a free market.

This objection potentially is legitimate. However, the proof of the pudding is in the eating: Manipulated or not, the gold market performs better when the HGNSI is lower than when it is higher.

That at least is the conclusion that emerged after I submitted more than two decades of HGNSI data to rigorous econometric tests. The inverse correlation between HGNSI levels and the gold market's direction over the subsequent several months is statistically significant at the 95% confidence level.

This doesn't mean that the gold market isn't manipulated, I hasten to add. More than one factor can influence the market's direction, after all.

But the results of my econometric tests do show that government manipulation of the gold market isn't the only factor influencing bullion's price.

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