"We've seen inflation expectations in the US fall and nominal interest rates rise," the firm's head of research, Nick Brooks, told IndexUniverse.eu."As a result, real interest rates have shown quite an aggressive change in direction since October 2012. Unsurprisingly, that's also coincided with a rise in the Dollar. Tactically, this is possibly the worst environment for gold you could imagine."
"Very few investors have taken gold out of their portfolios altogether," Lytle told IndexUniverse.eu, "but many have brought their holdings back to core positions, whereas they previously were overweight in the metal."
"We've been reducing the weighting steadily over the last two years," said Morris. "Our final cut was in February and we're now down to just over 1%."
"The big question for everyone now is where gold goes in the next three to six months," said Source's Lytle. "People still have conviction that gold provides a good hedge for their portfolios, and there's been a lot of physical buying by Indian and Chinese jewellery manufacturers, but people are waiting to see if this is sufficient to stabilise the market and to provide an upwards movement in prices."
"Total holdings of gold ETPs are now back at mid-2010 levels," said Brooks. "Over the last couple of years gold had become a hot asset, attracting hedge funds and more tactical and less specialist players. Many of these investors may now have been cleared out."
"Short positions in gold, expressed via the futures market, are near all-time highs. A lot of the bearish views on gold investment have already been expressed."
"If US inflation expectations start to pick up again, gold could do better," Brooks told IndexUniverse.eu. "Conversely, if it looks as though investors have overestimated US growth prospects and nominal bond yields start to come down again, that would also be supportive of the gold price.""Combined with the amount of negative sentiment out there, I think we're getting close to a bottom. We may not have hit it, but we may not be far off."
"We compare gold with other long-term, value-oriented metrics such as inflation, other commodity or housing prices," Morris told IndexUniverse.eu. "On that basis we get a sense of when the gold price is behind events, as it was in 1999, and when it's ahead of events, as it was in 2011."