Gold prices could go up if these two things happen with the economy and market timers

And while I pray
GC00,
+ 0.86%
recovered after an initial fall alongside the S&P 500
SPX
-0.77%
In late February and early March, its price is now almost 3% below its high in mid-April, including a drop of 1.5% only Thursday of this week.

Prudent consumers

The first factor explaining these impenetrable reactions is the slowdown in money: the frequency with which money changes hands. Indeed, increasing the money supply, as the federal government has done, will be less stimulating in that people will be less inclined to use it.

There is no doubt that the speed of money has decreased. In fact, as you can see in the table below, it has dropped. Part of the reason why the speed has slowed down is that many of us have been accommodated on site and therefore have had less opportunity to spend than before. But we are also reluctant to spend because we are worried about the future: if we are going to have a job, if a bankrupt stock market sabotages our pensions, etc.

So even if there is more money going into the economy, we are less likely to spend it. Therefore, it should not be particularly surprising that the additional stimulus did not translate into higher expectations of inflation and gold prices.

Excessive optimism in the gold market.

The other reason why the price of gold has not exploded as a result of the government’s extraordinary stimulus is the excessive optimism of the gold market timers. As the reverse analysis shows, markets generally work better out of skepticism than out of optimism.

Consider the average exposure level recommended in the gold market among the dozens of short-term gold timers that I monitor (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). Since the gold peak in mid-April, for example, this average exposure level has increased slightly, from 52.0% to 54.2%, even as the price of gold has dropped more $ 40. It is a sign of sustained optimism when exposure levels remain constant, much less upward, as the market declines. And stubborn optimism is not positive, according to opponents.

Currently, the HGNSI is higher than it has been on 81% of trading days since 2000. To illustrate the low odds against gold due to the high level of HGNSI, I have constructed the following table. It contrasts the performance of gold mining stocks after 19% of the days since 2000 when the HGNSI was highest, with returns after 19% of the days where the HGNSI was lowest. (The table focuses on the performance of the VanEck Vectors Gold Miners ETF.
GDX
-2.59%
.)

At the end of the line? The short-term outlook for gold will be poor at best, as long as the consumer is reluctant to spend money at past rates and the timers in the gold market are as optimistic as they have been recently.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert notes follow investment bulletins that pay fixed costs to be audited. He can be contacted at mark@hulbertratings.com

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