Top Financial Advisors Negative On Gold As Perfect Contrarian Storm Brews

February 19, 2013

The outlook for gold has turned profoundly negative.  With prices down over 4% since the start of the year, gold is off to the worst start since 2001.  Billionaire investors George Soros and Louis Moore Bacon have dramatically slashed their gold holdings and Bloomberg reports that money managers have liquidated gold and precious metal holdings for six straight weeks, the longest stretch of outflows since the first quarter of 2011.

Further confirmation of the bearish outlook on gold investment was provided by Barron's latest survey of America's top financial advisors who manage money for the ultra wealthy.  According to Barron's, the "one clear theme" of the advisors for 2013 is an increased commitment to stocks,  logically implying that most advisors see a better economy and rising corporate profits.  With bond yields reaching all time lows, stock dividends are also able to provide income starved investors with yields unattainable from government debt securities or gold.

Barron's surveyed the best financial advisors in fifty states and the District of Columbia and listed their latest recommendations.  Out of the 51 financial advisors interviewed, only two gave a lukewarm recommendation for gold as a hedge.

With the investor outlook for gold about as negative as it can get, a contrarian opportunity is developing.  A negative consensus by itself is not sufficient to justify an overallocation to gold nor can it provide the timing for a reversal.  Negative sentiment and corresponding price declines provide the opportunity to assess the validity of the consensus and weigh the opportunity for out-sized gains when the consensus swings in the opposite direction.

The probability for a sentiment reversal on gold is not unreasonable.

Severely dysfunctional governments worldwide have abdicated responsibility for implementing policies that would lead to sound fundamental economic growth and fiscal restraint.  In their stead, responsibility for running world economies has been delegated to central banks which have virtually zero constraints on providing easy money as the solution for over indebtedness and slow growth.

The consensus belief is that the benefit of unlimited cheap money, which is clearly stimulating current asset inflation, will eventually benefit the real economy.  This beautiful theory of wealth creation by central banks becomes even more appealing as central bankers assure us that easy money policies will not cause high inflation since monetary policies could quickly be adjusted if inflation rises too high.  After putting the world on a path to permanent prosperity and ending poverty through unlimited money printing, perhaps the world's central banks will also come up with a cure for cancer - we shall see.  In the meantime, the contrarian case for investing in gold grows with each passing day.

Comments

By Elad Reuven on February 19th, 2013 at 5:11 pm

The Margin Requirement went up. that why gold has been down the last few weeks.some people need to sell out there positions. its a matter of time before it rebounds and goes back to 1700 per oz. My Exception is gold will Hit 2000 this Year! Cash for Gold

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