Adrian Day: Gold 'Capitulation' Provides Buying Opportunity
(Kitco News) - Gold’s “capitulation” presents a buying opportunity for themetal and mining stocks, says Adrian Day, chairman and chief executive officer of AdrianDay Asset Management.
Spotgold has fallen from above $1,350 in early April to below $1,200 an ounce. Lastweek, gold hit its weakest level since early 2017.
“TheU.S. economy, stock market, and particularly [the U.S.] dollar have all beenbroadly positive for most of the year, making it a difficult environment forgold, with demand for the metal sliding; U.S. coin sales hit 10-year lows,reflective of this lack of demand,” said Day in a note to clients.
There is market talk that Turkey may have been a seller ofgold lately, which the fund manager said “makes sense” since “one sells liquidassets” in a crisis.
“If this is the main cause of [gold’s] sharp decline in thelast week or so, then it is of necessity a temporary phenomenon,” Day said. “TheU.S. economy, stocks and the dollar may stay reasonably strong-for now at anyrate-so gold won’t suddenly explode upwards, but we could reasonably expect anear-term return above $1,200 towards the mid-$1,200s.”
Meanwhile, Day cited recent news that Vanguard is gettingout of the gold business at a time that general sentiment toward gold iscollapsing. The “largest precious metals fund by far” will change its name andmandate from the Precious Metals Fund to the Global Capital Cycles Fund, Daynoted.
“Vanguard shunning gold at this point may prove to be acontrary indicator of historical proportions,” Day said.
Meanwhile, the fund manager pointed out that largespeculators in the futures market collectively hold a net-short, or bearish,position.
“This, plus the largest gold fund changing its mandate, isas close to capitulation as one can get,” Day said. “The short-term recoverycould be as sharp as the decline, once the selling pressure is gone. This givesus the opportunity to buy great [mining] companies on sale, as well as to makesome short-term trades is grossly oversold stocks.”
By Allen SykoraFor Kitco News
Follow @AllenSykora
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