Gold's gains are built on a shaky foundation, says mktwhulbert
That means, at least from the perspective of contrarian analysis, that it’s unlikely that the rally is the beginning of a major new leg up.
The reason to nevertheless question the rally’s staying power is the absence of widespread bearishness when the move began. The Wall of Worry wasn’t very strong, in other words. Gold’s most sustainable rallies of the last five years have begun when there was a lot more bearishness than prevailed in early May.
The lowest this average fell to in the days leading up to gold’s early-May low was just minus 8%. As you can see from the accompanying chart, the most powerful rallies of the last five years were launched from HGNSI levels that were at least minus 25%, if not lower. Negative HGNSI levels mean that the average short-term gold timer is short the gold market.
This doesn’t mean that gold couldn’t continue to rally, needless to say. Sentiment isn’t the only thing that makes the world go ‘round.
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