CHAPEL HILL, N.C. (MarketWatch) — Gold’s likely direction in coming weeks is down, according to contrarian analysis.

That’s because contrarian investors are still not detecting the widespread pessimism and despair that signals a tradeable low is at hand. That’s surprising, since gold has fallen nearly $50 so far this month. Such a decline, coming as it does in a bear market that has already lasted more than four years, normally would lead the gold timers, en masse, to throw in the towel.

But they haven’t, even as investors themselves are abandoning gold at a reportedly “startling rate.” Until the gold timers become a lot more bearish than they are now, contrarians are patiently sitting on the sidelines.

Consider the average gold timer’s recommended gold-exposure level (as represented by the Hulbert Gold Newsletter Sentiment Index, or HGNSI), which currently stands at minus 30%. Though that’s 23 percentage points lower than where the average was earlier this month, it remains higher than the even lower lows registered in recent years when gold was at a noteworthy bottom. (See the chart above.)

Consider the two trend lines that are drawn in the chart, which show the trends over the past couple of years in those tradeable lows as well as the HGNSI levels at those lows. Notice that the distinct downtrend in gold has been accompanied by an equally distinct uptrend in bullish sentiment.

This is a classic pattern that contrarians often call a “slope of hope.” It is just the opposite of the so-called “wall of worry” that markets like to climb. Walls of worry are characterized by extreme levels of bearishness that the market timers are reluctant to give up even in the face of a rally.

In mid-September, it briefly appeared as though just such a wall of worry was forming. That was when the HGNSI dropped to minus 40%, which — as you can see from the chart above — was below the uptrend formed by connecting the other HGNSI lows since mid-2013. Notice, however, that gold-market bullishness quickly jumped in the wake of the ensuing rally — and the rally quickly petered out.

Some day, the gold-timing community will throw in the towel in a big way, and then remain stubbornly bearish in the face of gold’s initial rally off those lows. That’s when contrarians will be looking to buy.

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