Wednesday, July 10, 2013

Gold searches for a bottom

While the bears continue to proliferate, there are also some respected professionals currently buying gold under the radar. One such example is Sebastian Lyon, the fund manager overseeing Personal Assets Trust, £600m investment fund whose overriding aim is to preserve shareholders’ capital.

Personal Assets Trust’s market-beating performance during the worst of the crisis was largely due to its big investment in bullion – currently more than 12 percent of its portfolio.  While the gold price has fallen in recent months, Lyon has topped up gold holdings, according to reports.  

The biggest entity of note to call for a short-term gold and commodities market bottom is of course Goldman Sachs.  Goldman’s long-term historical accuracy for calling market bottoms is unsurpassed among major institutions and provides a degree of confidence that the yellow metal is indeed close to a bottoming out point.  Goldman was joined by a bullish short-term call on gold a week ago by JP Morgan.

Various investor sentiment polls on gold show capitulation levels of bearishness, which increases the odds of a near-term bottoming process based on the contrarian principle.  Between the recent increase in bullishness among “smart money” players and the extreme bearish sentiment of the crowd, gold should be able to feed off these conflicting emotions and grind out a bottoming pattern in the coming weeks.