Why aren’t gold traders more scared? Commentary

Why aren’t gold traders more scared?
Commentary: Average gold trader has yet to throw in the towel — a bad sign
CHAPEL HILL, N.C. (MarketWatch) — Gold traders aren’t running scared. And that’s why you should be.

Consider: Gold (CNS:GCZ3) has fallen nearly $70 so far this month, and $140 since late August — including another $3 in Monday’s trading. And, yet, in response, the average gold trader is not nearly as upset as he was on the occasion of prior price drops of similar magnitude.

That’s worrisome from a contrarian point of view.

Contrarians would be more confident that a tradeable low is near if the average gold trader had reacted to the recent declines by turning aggressively bearish. But, far from doing that, he has rather stubbornly held on to his gold holdings.

That suggests to contrarians that more declines are necessary to rebuild the veritable wall of worry that rallies like to climb.

Consider the average recommended gold-market exposure among a subset of short-term gold timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). This average currently stands at 10%, as you can see from the accompanying chart.

To put that in context, consider that the best occasions in recent years for traders to get back into the gold market have been when the HGNSI has been in negative territory. In early July, for example, this sentiment index dropped to minus 56.7%, suggesting that the average gold timer was not only out of the gold market but also allocating more than half his gold-oriented portfolios to going short — a very aggressive bet on further declines. http://www.marketwatch.com/story/why-arent-go...beforebell