Dr Doom: gold price has bottomed out

(June 13, 2012 - by Sarah Miloudi, Citywire Money)

Marc Faber, a normally bearish market commentator, believes gold has hit a low. Meanwhile, leading asset allocators are holding around 7.5% on average in the precious metal.

Gold’s reputation as a shelter during troubled times has been tarnished as its price has responded to falling stock markets with its own decline of nearly 20% from last September’s peak.

But with speculators’ eyes once again being drawn to the precious metal, some of the most recognised forecasters are predicting bullion’s downtrend has come to an end.

Marc Faber, the normally bearish author of the Gloom, Boom and Doom report, believes that while gold is unlikely to streak past 2011’s $1,900 record, its price will not fall any further.

’I’m not sure that gold will not make a new high this year, but I think we’ve bottomed out,’ Faber said, and speaking to Bloomberg added that some gold mining shares also look very cheap.

At the same time, data on speculative gold trades revealed the largest jump in net longs in more than four years, suggesting that hedge funds have reduced are turning bullish again and have reduced their ’short’ bets that its price will fall. Moreover, last week inflows into gold exchange traded commodities (ETCs) hit $500 million, a 10-month high, even though the price of bullion, currently at $1,590, ended the same week flat.

Faber, who earlier this year, said that in a world where money printing is likely to continue, investors are once again waking up to the fact the metal has appeal.

’I think that in the current environment where it is clear that the worse the economy becomes the more money printers will be at work, that to own a currency whose supply can not be increased at the will of the central banks is a desirable investment,’ Faber argued.

The five leading asset allocators that our Citywire Selection team follow appear to have reduced their average holding in gold bullion and gold mining shares to around 7.5% in April, down from 8% at the end of last year. However, this masks wide differences with the Trojan fund, a star pick of Selection run by Citywire AAA rated Sebastian Lyon, holding 15% in gold with Iain Stewart of Newton Return holding less than 4%.