Market Nuggets: Adrian Day Looks For Gold To Recover From Recent Weakness

Thursday February 21, 2013 4:00 PM

Adrian Day, president of Adrian Day Asset Management, looks for gold to rally from recent weakness. Some of the factors driving down gold over the last five months include improving U.S. economic data, concerns about when the Federal Reserve might eventually end quantitative easing, a lessening of the eurozone crisis and an exodus from gold by hedge funds at year-end. Still, Day points out, while the U.S. economy is improving, it also is not robust and Japan and Europe reported weak gross-domestic-product data last week. He looks for continued accommodative monetary policy in the U.S., Japan and U.K. “Though ‘some members’ of the FOMC think bond buying should end, the Fed has made clear that the ‘very accommodative’ monetary policy would continue, even after the economy had improved,” Day says. He calls reduced fund holdings of gold a “positive sign” for contrarians, commenting that hedge funds that jumped to stocks may turn back to gold at the next budget impasse in Washington. Another contrarian indicator is the apparent rapid increase in short selling. “What has been sold short, has to be bought back eventually,” he says. “One can’t be sure how much lower or for how much longer gold will fall, but we are closer to the bottom than the top, for both gold and gold shares….The fundamentals remain positive for gold, while valuation indicators for gold and shares are near long-term lows. The clear breakdown of budget talks may provide the trigger for selling the stock market and moving back into gold.”

By Allen Sykora of Kitco News; asykora@kitco.com