Has Gold Bottomed?
JOE FOSTER: We think the gold market is forming a base. We’ve had a historic sell-off in gold during the second quarter of 2013. We view June’s low of $1180 an ounce as a bottom for the market and see gold gaining strength for the remainder of this year. There are a couple of reasons for this. One is that we've seen tremendous demand out of Asia for physical gold and that has placed a price floor for gold. Second is that we've seen redemptions in gold bullion ETFs stop. We've seen redemptions in bullion ETFs since February of this year which put a tremendous amount of pressure on the gold price. That reduction activity stopped in July which may allow gold prices to move higher.
Reasons For Recent Rally
FOSTER: We see the recent strength in gold price as a reversion to the mean scenario caused by extreme overselling in gold ETFs. We're also seeing strong demand out of Asia. Lower prices have attracted buyers in that part of the world. A lot of gold has been flowing out of vaults in London and New York and into vaults in Singapore, Hong Kong, and Shanghai. ETF selling has also tapered off so we're not seeing the same selling pressure. This has allowed gold to have a bit of a bounce back in prices.
Positioning of Fund
FOSTER: We saw gold prices in June at extremely oversold levels. That was a signal to us to start increasing our leverage to gold. Around January earlier in the year, we took on a bullion position as a defensive measure. We are also maintaining higher cash positions in a defensive posture as well. We've started to unwind those trades, going out of bullion, out of cash, and into gold stocks to provide leverage in the event that we do get some more strength in the gold price.
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