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Will the gold market surge higher?

*Barron's, by Mark Hulbert, July 14, 2011

”With many worried market timers still heavily in cash, the metal has an ample source of funds.

The sentiment stars are aligning powerfully in favor of gold continuing its recent rally, which has already taken it into new all-time high territory.

That at least is the forecast that emerges from a contrarian analysis of the current mood among gold market timers.  These timers, on balance, have become gloomier than they have been since July 2009 — even though gold then was trading around $930 an ounce, or nearly $600 less.

And an asset is often helped by having to climb a wall of worried investors.

Consider the average recommended gold market exposure among a subset of short-term gold market timers tracked by the Hulbert Financial Digest (as represented by the Hulbert Gold Newsletter Sentiment Index, or HGNSI).

This average currently stands at just 20.3%, which means that the average gold timer is allocating 79.7% of his gold-oriented portfolio to cash.

That means that there’s still a lot of cash that can be put to work buying gold.

That’s amazing, given that gold is trading at or near its all-time high in recent days.  In midmorning trading Wednesday, gold for August delivery was trading at $1,579 an ounce on the Comex division of the New York Mercantile Exchange.

Since the mood among the gold timers tends to rise and fall along with gold bullion itself, you’d expect their average exposure level to the metal among market timers to also be close to an all-time high.

That they are not is already powerful evidence in favor of the contrarian forecast of higher gold prices.  But there’s more.

Another indication: the gold timers’ behavior during bullion’s rally that lasted from mid-May to mid-June.  In that rally, of course, gold recovered almost all of the ground it had lost in its early May plunge. And yet the HGNSI hardly budged, never getting higher than 27% — which means that the average gold timer during this rally never reduced his cash level below 73%.

Contrarians consider this to be a telltale sign that the timers are stubbornly clinging to their pessimism.  That in turn suggests that the wall of worry is particularly robust and, therefore, able to support more than just a flash-in-the-pan rally.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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