A bear raid on gold

A growing number of asset managers from high profile investment banks foresee a gold breakdown, however.  Could they be correct in their dire prediction?  

Ordinarily we could answer that question in the negative.  After all, fund managers have a historical tendency to be wrong at major inflection points.  But this isn’t an inflection point for gold, at least not yet.  What we’re dealing with here is a possible continuation of a well-established trend that has been in place for almost two years.  The crowd (and by “crowd” we can include fund managers) can be right during the final “hard down” portion of a major bear market, much like they were during the final months of the 2008 credit crisis. 

Also worth pointing out is that downside momentum and negative investor sentiment both tend to feed on itself during the last stages of a major decline.  With so many hedge funds responsible for the short-term moves in commodities like gold, all it takes is for a herd mentality to develop and the next thing you know there can be a self-fulfilling sell-off underway. 

Just how bearish has the crowd become on the yellow metal?  Based on a Bloomberg survey, the number of traders expressing bearish views on gold increased to its highest level this year.  Confirming this widespread bearish sentiment, gold-backed ETP holdings fell to a two-year low of 2,117 metric tons last week.  While some investors looked for the Chinese to lend support to the physical gold market with continued purchases of physical bullion, the cards appear to be stacked against gold in the short term.