The yellow metal usually rallies following periods in which gold timers are abnormally bearish – and vice versa. By the end of the last week, the average dropped to its lowest level in two and one-half years—minus 13%. That meant that the average gold timer was recommending that his clients allocate 13% of their gold portfolios to going short, which is an aggressive bet that gold will go lower. The last time the HGNSI was this low was in March 2009, when gold bullion was trading in the low $1400’s.
Tuesday’s rise was not a surprise. Contrarians anticipate gold to continue rising. That’s because, even in the wake of Tuesday’s jump, the HGNSI remains almost as low as it was last Friday—minus 6.3%.
Some arbitrage buying from Shanghai also underpinned the market sentiment, analysts comment. The Diwali festival is also expected to trigger retail buying in Asia.
Fresh buying from funds and short-covering also helped gold’s rally, according to traders.