Sept. 21, 2011, 12:01 a.m. EDT

Is gold becoming Theglobe.com?

Commentary: Compare gold and 1990s dot-com bubble

By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch) — Is gold forming a bubble?

It seems that way to many, given its stunning rise in recent months. Their speculation has been fueled by no shortage of posts in the blogosphere that declare gold to be in a blowoff similar to the final stage of the Nasdaq Composite’s rise before the Internet bubble burst in March 2000.

But I’m not so sure.

Compare gold’s rise over the last decade to that of the Nasdaq Composite Index (NASDAQ:COMP) over the 10 years through March 10, 2000 — the day of its all-time closing high at 5,048.60. At least in comparison to that bubble, gold still has a long way to go.

In fact, if gold had risen as much over the last decade as the Nasdaq Composite did in the 1990s, then bullion would today be trading at more than $3,200 an ounce. That’s nearly double its current price of around $1,800 an ounce.

But there is an even more fundamental distinction between the top of the dot-com bubble in March 2000 and the current gold market: Then, the typical stock market trader believed stocks were headed much, much higher — and, therefore, that any pullback should be used to buy more.

In today’s gold market, in contrast, there is a remarkable level of skittishness in the gold-timer community. That is not the typical sentiment hallmark of a top of a bubble.

Contrast the market timers’ reactions to the correction that occurred in the Nasdaq market in late March 2000 and to the recent one in gold. Consider first the average recommended stock-market exposure among a subset of short-term stock-market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). Believe it or not, when the Nasdaq Composite underwent its first 10% correction off of its March 10, 2000, high, the HSNSI rose 20 percentage points — rather than falling, as is the usual pattern in the wake of declines.

Now that’s stubbornly held bullishness.

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Comparing gold and dot-coms

Investor enthusiasm is particularly keen on the yellow metal, around $1,800 an ounce. How does gold's rise compare to the rise of the Nasdaq Composite Index during the 1990s? Mark Hulbert does the charting, and comes away with compelling findings. Laura Mandaro reports.

And it is not how the gold timers tracked by the Hulbert Financial Digest reacted to gold’s recent drop — which took more than $100 off of bullion’s price in just 10 days’ time. The Hulbert Gold Newsletter Sentiment Index (HGNSI) fell by 20 percentage points.

Someday, of course, the gold market will hit a major top and undergo a significant decline. But, on the assumption that this major top will be accompanied by stubbornly held bullishness, we are not at that top today.